GST on Premium EVs Set for Hike from 5% to 18%

As India braces itself for the economic consequences of the ongoing tariff war with the United States, the government has been actively looking for ways to mitigate the damage. Among the significant measures under consideration is a rationalization of the Goods and Services Tax (GST) structure across various sectors. In particular, the government seems set to revise the GST rates for the automobile sector, with special attention to electric vehicles (EVs).

GST Reduction on Small Cars: A Step Towards Boosting Consumption

To stimulate domestic consumption and offset the impact of higher tariffs, the Indian government is planning to reduce the GST on small cars from the existing 28% to 18%. This move is intended to make affordable cars more accessible to the middle class and encourage vehicle sales, especially in the context of economic uncertainty caused by tariff hikes.

This tax reduction would be in line with the government’s broader efforts to promote consumption in key sectors, particularly those like the automotive industry, which have felt the pinch of rising raw material costs and sluggish sales. The proposed reduction, however, is focused solely on smaller vehicles, with a different approach for the higher-end car market.

Short Summary

Premium Cars and SUVs to Face Higher GST: Special Rate of 40%

For the premium car segment, which includes SUVs and high-end vehicles, the GST rate is expected to increase significantly. According to reports, these vehicles could face a special rate of 40%, which is higher than the current rate for premium cars.

The move is seen as a way for the government to ensure that the taxation system is progressive, with higher taxes imposed on luxury goods. By raising the GST rate on premium cars and SUVs, the government aims to generate more tax revenue while discouraging the consumption of high-end vehicles in favor of more affordable options. This would also align with the government’s broader agenda of pushing for mass adoption of electric vehicles and smaller, more economical cars.

The Disproportionate Benefit for High-End EV Buyers

In a noteworthy shift in policy, the government has also focused its attention on electric vehicles (EVs), particularly those that fall within the premium category. Currently, EVs priced between Rs 20 lakh and Rs 40 lakh benefit from a concessional GST rate of just 5%, a provision that was initially introduced to stimulate the adoption of electric vehicles in India.

However, the government now believes that this concessional rate disproportionately benefits wealthy buyers of luxury EVs, who are not the intended target of such incentives. Instead, the government wants to shift its focus to encouraging the adoption of affordable electric vehicles, which are more likely to benefit the masses and contribute to broader environmental goals.

Thus, the government is reportedly looking to increase the GST on premium 4-wheeled electric vehicles in the price range of Rs 20 lakh to Rs 40 lakh from 5% to 18%. This shift is aimed at better aligning the taxation system with the government’s goal of promoting more affordable EV options and accelerating the adoption of green mobility.

Economic Rationale Behind the Proposed Change

The rationale behind increasing the GST on high-end EVs is simple: such vehicles are typically purchased by affluent individuals who can afford to bear higher taxes. In contrast, the government argues that lower taxes on affordable EVs would encourage greater adoption among the middle class and low-income groups, who are more likely to switch to electric mobility due to the lower operating costs and environmental benefits of EVs.

India’s electric vehicle market has seen exponential growth in recent years, largely driven by a combination of government incentives, lower operating costs, and increasing environmental awareness among consumers. However, the luxury EV segment has also grown considerably, with many high-end global car manufacturers offering electric variants of their most popular models in the Indian market.

By increasing the tax on these luxury vehicles, the government hopes to shift the focus back to electric vehicles that are more within the reach of the average Indian consumer. This move is also seen as an effort to create a more balanced and equitable approach to taxation in the EV sector.

The GST Council’s Upcoming Meeting

The GST Council, which is responsible for determining tax rates and other fiscal measures, is scheduled to meet on September 3-4, 2025. The council is expected to finalize the new GST rates for electric vehicles and other automobiles during this meeting. This date will be crucial in determining the future tax structure for the automobile sector, and all eyes are on the outcome of this important discussion.

Key Takeaways

• GST on Small Cars: Likely reduction from 28% to 18% to boost consumption and make cars more affordable.

• Premium Cars and SUVs: GST rate could rise to 40%, focusing on higher-end vehicles to ensure a more progressive tax structure.

• Premium EVs: GST on electric vehicles priced between Rs 20 lakh and Rs 40 lakh could rise from 5% to 18%.

• Objective: Shift focus towards affordable EVs for mass adoption, while discouraging luxury EV purchases.

Frequently Asked Questions (FAQ)

Q. Why is the GST on premium EVs being increased?

A. The government believes that the concessional 5% GST on premium EVs disproportionately benefits wealthy buyers. The aim is to encourage the adoption of more affordable EVs for the masses.

Q. What impact will this have on consumers?

A. Buyers of premium EVs may face a higher tax burden, while those purchasing smaller and more affordable EVs could benefit from lower taxes and government incentives.

Q. When will the new GST rates be finalized?

A. The GST Council is expected to finalize the new GST rates during its meeting on September 3-4, 2025.

Q. Are there any changes to the GST rates for small cars?

A. Yes, the GST on small cars could be reduced from 28% to 18%, making them more affordable for consumers.

Q. How does the government plan to boost the electric vehicle market?

A. By rationalizing GST rates and focusing on affordable electric vehicles, the government aims to make EVs more accessible and encourage widespread adoption.

For More Information Click HERE