The GST council has proposed steep increases in consumer levies on luxury electric cars priced above $46,000, a government document showed, a move that could impact sales of carmakers such as Tesla, Mercedes-Benz, BMW and BYD.
Prime Minister Narendra Modi is aiming to reform India’s tax system and is pushing Indian customers to buy more domestic goods, just when relations with the United States have soured due to high tariffs. His government has recommended hefty cuts in the goods and services tax (GST) that could make everything from shampoos to electronics cheaper.
The key panel tasked with making rate suggestions to India’s powerful GST Council has backed sweeping cuts to many items in line with PM Modi’s overhaul, but it has called for raising taxes on electric cars, the document detailing its recommendations showed.
The panel recommended raising the GST rate to 18% from 5% currently for EVs priced between ₹2 million and ₹4 million ($23,000-$46,000). It also proposed hiking the tax to 28% for cars priced above $46,000, saying that such vehicles cater to the “upper segment” of society and are largely imported rather than manufactured domestically.
But the government has simultaneously decided to do away with the 28% tax rate altogether, leaving the GST Council with the option to increase the tax on EVs to 18%, or put them in the newly planned 40% category carved out for certain luxury goods, said an Indian government source familiar with the discussions.
The GST Council, led by the Union Finance Minister, and which has members from all States, is meeting on September 3-4 to review the proposals, and has the ultimate authority on decision-making.
The secretariat of the GST Council did not respond to Reuters queries.
After the Reuters story, the Nifty Auto index turned negative and fell as much as 0.5%, with local automakers Mahindra and Mahindra falling almost 3% and Tata Motors dropping 1.2%.
India’s EV market is small, making up about 5% of total cars sold in April to July this year, but growth in the segment has been rapid — EV car sales in India rose 93% to 15,500 units during that period.
“The uptake of electric vehicles is increasing and while, the low rate of 5% is to incentivise faster adoption of electric vehicles, it is also important to signal that higher-priced EVs can be taxed at higher rates,” said the document, detailing the tax panel’s recommendations.
The proposal could affect domestic EV makers such as Mahindra and Tata Motors, though their offerings above the ₹2 million price range are limited.
Foreign automakers offering high-end EVs stand to be hit harder. Tesla just launched its Model Y in India with a base price of $65,000, while Mercedes-Benz, BMW and BYD also offer top-end luxury electric cars.
Carmakers have unanimously called for maintaining the 5% GST rate to avoid disrupting India’s EV aspirations and targets.
In a statement, Tata told Reuters it is “imperative” the tax rate is retained as any hikes will slow “the transition to clean mobility.” BMW India, which is investing in expanding its EV portfolio in the country, said an increase “can derail the vision of high electric adoption and local production.”
Mercedes-Benz said that an upward revision would “mostly impact the entry-level” luxury cars. “Our top-end luxury battery EVs will not be impacted much,” said Santosh Iyer, CEO, Mercedes-Benz India.
In July, Tata Motors led the Indian electric car market with a near 40% market share, while Mahindra has 18%. BYD holds a 3% market share, while Mercedes and BMW together account for 2%. Tesla is taking bookings but has yet to start deliveries.
Tesla has opened two showrooms in India in recent months, years after Elon Musk repeatedly criticised high tariffs of roughly 100% on imported cars. The GST tax is applied on top of these tariffs, further increasing the costs of Tesla cars.
Published – September 02, 2025 11:03 pm IST
