New Delhi – In a decisive move that reinforces India’s commitment to clean mobility transition, the GST Council confirmed that all categories of electric vehicles will continue under the preferential 5% GST rate with no additional cess under the newly restructured tax system. This policy continuity comes despite earlier speculation that premium EVs could be shifted to higher tax brackets under the new two-slab structure, demonstrating the government’s unwavering support for electric vehicle adoption across all market segments.
Policy Continuity Amid Tax Structure Reforms
The GST Council’s decision maintains the concessional tax treatment for electric vehicles even as broader GST reforms introduce a simplified two-slab structure comprising 5% for essentials and 18% as the standard rate, alongside a 40% bracket for sin and luxury items. Initial market speculation suggested that premium electric vehicles could be reclassified into higher tax slabs, potentially undermining the policy support that has been crucial for market development.
By maintaining uniform 5% taxation across all EV categories, from mass-market models to luxury variants, the Council has effectively signaled that clean mobility remains a national priority transcending price segments. This policy stance recognizes that even premium EV adoption contributes to environmental goals and technology development that benefits the entire ecosystem.
Market Performance Validates Policy Support
Current market data supports the Council’s decision to maintain preferential treatment for electric vehicles. Between April and July 2025, EV sales reached 15,500 units, demonstrating steady market growth despite various economic challenges. Tata Motors leads the market with a commanding 40% share, followed by Mahindra at 18%, indicating strong domestic manufacturer participation in the electric transition.
The market landscape continues to evolve with international players like Tesla entering through the Model Y, though deliveries are yet to begin. This growing competition and market maturation validate the policy framework’s effectiveness in fostering a competitive and innovative electric vehicle ecosystem.
Strategic Alignment with Climate and Industrial Goals
The decision to maintain 5% GST on all EVs aligns with India’s broader climate commitments and industrial policy objectives. As the government pursues ambitious targets for electric vehicle adoption and renewable energy integration, consistent policy support across all vehicle categories ensures that market forces can operate effectively without artificial tax-induced distortions.
This policy continuity also supports the development of domestic manufacturing capabilities, as consistent demand across price segments enables manufacturers to achieve economies of scale and invest in research and development. The Council’s approach effectively balances revenue considerations with strategic policy objectives, prioritizing long-term environmental and industrial benefits over short-term tax collection optimization.
