The allpowerful Goods and Service Tax (GST) council meeting, chaired by Union Finance Minister Nirmala Sitharaman, is currently underway at New Delhi. In this meeting, the council will take up issues related to nextgen GST reforms focussed on various sectors including automobiles.

Initial reports have suggested that the council is mulling on raising the GST on electric vehicles (EVs), priced between Rs 20 lakh and Rs 40 lakh (exshowroom) from the current 5% to 18%. This has drawn sharp reactions from across the industry, particularly OEMs who have multiple EVs in their portfolio. 

Speaking on the speculations surrounding the new GST structure and the raise in tax slab for EVs, Ajinkya Firodia, Vice Chairman of Kinetic India, said, “We still need to support EVs. EVs, after all these years of subsidy, are finally getting accepted and growing; however, penetration is still in single digits at 9 percent. Hence, we should consider subsidy continuation and enhancement for 5 years clearly, till there is a 40–50 percent shift to the same.”

He further added that suggested that instead of rationalising funds from 28 to 8, a uniform 15 percent rate could be applied to petrol while simultaneously increasing the subsidy back to Rs 15,000 per kWh, which, according to them, would address all requirements.

GST increase on EVs: Implications

If this turns out to be true then the government’s move to levy 18% GST on EVs will have significant implications for the sector. While EVs were earlier taxed at 5%, the revised rate alters affordability, adoption pace, and industry dynamics. Ahead of the final draft of the new GST structure, here’s a quick rundown of all possible implications of raising the tax slabs for EVs.

1. Higher Upfront Costs: The jump from 5% to 18% GST will directly impact prices of EVs, making them less attractive compared to internal combustion engine (ICE) vehicles.
2. Slower Adoption Curve: The higher tax burden may dampen consumer interest, especially in costsensitive segments like twowheelers and entrylevel cars.
3. Impact on OEMs & Startups: Manufacturers, particularly EV startups, could face reduced sales volumes and slower return on investment, affecting innovation and expansion plans.
4. Charging Ecosystem Investment: With slowed adoption, charging infrastructure players may also experience lower utilisation and longer breakeven timelines.
5. Policy Contradiction: The move, if implemented, will run contradictory to India’s EV adoption goals under FAME II and netzero targets, creating uncertainty in the policy environment.
6. Potential for Incentive Restructuring: The higher GST may prompt calls for stronger subsidies, statelevel incentives, or tax credits to balance the impact.

Higher taxes for luxury EVs

That said, luxury EV makers such as MercedesBenz, BMW, BYD, and Tesla have to bear a bigger brunt. According to Reuters, electric cars priced over Rs 40 lakh could fall under an even higher GST slab of 40%. This will significantly raise prices of the luxury EVs. For example, an EV with a price tag of Rs 1.00 crore under the current 28% GST slab will cost Rs 9.38 lakh more if the GST slab is raised to 40%.