GST New Rates: Premium And Luxury Electric Cars Likely To Attract 18% GST

The Goods and Services Tax (GST) Council is considering a significant change that could alter the pricing of premium electric vehicles in India. A Group of Ministers tasked with rationalising GST rates has recommended raising the tax on high-end electric cars from the current 5 percent to 18 percent. If implemented, this move would end the era of uniform concessional rates across the EV segment.

Proposed Change and Rationale

According to the draft recommendation, electric vehicles priced between ₹20 lakh and ₹40 lakh would attract 18 percent GST. This would mark a sharp jump in taxation, effectively more than tripling the rate currently applied. The proposal has been placed before the 56th GST Council, which will deliberate on the matter at its upcoming meeting in New Delhi.

Officials backing the proposal argue that the present concessional rate benefits wealthier buyers more than those in lower income brackets. Maintaining a flat 5 percent tax rate, they say, amounts to subsidising luxury purchases and causes a revenue shortfall for the government. The shift represents a change in policy approach, moving away from blanket incentives that were originally designed to support EV adoption across all categories.

Impact on Premium EV Market

If accepted, the new tax structure could have a direct impact on demand for premium electric vehicles. The price gap between internal combustion engine luxury cars and their electric counterparts could widen further, making EVs less attractive to affluent buyers who have so far played an important role as early adopters.

Manufacturers in the premium space, including Mercedes-Benz, BMW, Audi, and others, may need to reconsider their pricing strategies. Absorbing the additional tax burden could affect profitability, while passing it on to consumers may risk slowing demand. Domestic companies that plan to introduce high-end EVs would face similar challenges in balancing cost and competitiveness.

Beyond pricing, the role of premium EVs in developing the broader ecosystem is also relevant. These vehicles have helped create demand for fast-charging infrastructure, brought advanced technologies into the market, and increased awareness among consumers. A slowdown in their sales could affect the pace of infrastructure development, particularly in urban and semi-urban centres where luxury EVs are more common.

Wider Market and Policy Implications

The proposed change comes at a time when the government is reviewing subsidies and tax concessions across sectors. Officials believe resources must be directed toward areas where social and environmental benefits are maximised, such as public transport. Under the new recommendations, electric buses will continue to enjoy concessional treatment, reflecting their role in mass mobility and emissions reduction.

For the overall EV market, a higher GST on luxury vehicles could push manufacturers to focus more on mass-market products priced under ₹20 lakh, which are expected to retain concessional rates. This might accelerate the development of affordable EVs but could also slow the growth of the high-end segment.

Consumer behaviour is also likely to shift. Some buyers may advance purchases before the higher tax comes into effect, while others could opt for models just below the ₹20 lakh mark to avoid the additional tax burden. Such changes could create short-term distortions in sales patterns and affect inventory planning for companies.

Next Steps on Sep 3-4

The GST Council is expected to take a final call on the recommendations during its September 3–4 meeting. State governments will be important stakeholders in this decision, as they need to balance revenue considerations with their own EV promotion policies.

If approved, the move would underline the government’s evolving approach to EV policy. Instead of broad-based incentives, the focus is shifting to targeted support that prioritises fiscal balance and equity. The outcome will determine not just the pricing of luxury EVs but also the trajectory of India’s electric mobility transition in the years ahead.