India’s recent overhaul of the Goods and Services Tax (GST) has simplified the tax system while signalling a strong intent to move toward sustainable mobility. The new framework now largely rests on two slabs – 5 per cent and 18 per cent – with a much higher 40 per cent applied to certain luxury and “sin” goods.
For the automobile industry, the restructuring means smaller internal combustion engine (ICE) cars fall under the 18 per cent category, while larger models attract 40 per cent, replacing the earlier patchwork of 28–31 per cent and 43–50 per cent. The removal of the compensation cess has further streamlined the regime. What is most notable, however, is the decision to place electric vehicles (EVs) in the lowest slab of just 5 per cent, irrespective of size or price.
This preferential rate reflects the government’s intent to nurture India’s growing EV ecosystem. The timing is critical: globally, transport contributes about a quarter of greenhouse gas emissions, and in India, the sector is responsible for nearly 14 per cent of total CO₂ output—of which road transport makes up the lion’s share. If India is to meet its 2070 net-zero target and its aspiration of becoming a Viksit Bharat by 2047, transport decarbonization will be central.
Research from the International Council on Clean Transportation (ICCT) underscores the scale of the challenge. It finds that for India to stay aligned with its net-zero pathway, the entire motor vehicle stock – both passenger and freight – must transition to electric no later than 2045–2050. This highlights the urgency of ambitious policies to accelerate the shift today.
Yet lower taxes alone will not make EVs mainstream. To truly accelerate adoption, three policy interventions are key.