Government panel recommends increasing GST rates on premium EVs above $46,000, potentially impacting Tesla, Mercedes-Benz, BMW and BYD sales in growing market.
02 Sep 2025 | 3162 Views | By Autocar Professional Bureau
An Indian tax panel has recommended significant increases in consumer taxes on luxury electric vehicles priced above $46,000, according to a government document reviewed by Reuters, a proposal that could affect sales for international automakers including Tesla, Mercedes-Benz, BMW and BYD.
The recommendation comes as Prime Minister Narendra Modi ...
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An Indian tax panel has recommended significant increases in consumer taxes on luxury electric vehicles priced above $46,000, according to a government document reviewed by Reuters, a proposal that could affect sales for international automakers including Tesla, Mercedes-Benz, BMW and BYD.
The recommendation comes as Prime Minister Narendra Modi pursues tax system reforms while promoting domestic manufacturing, amid strained U.S.-India trade relations over tariff policies. While the government has proposed reducing goods and services tax (GST) rates on many consumer items from shampoos to electronics, the approach toward premium electric vehicles represents a notable exception.
The tax panel has recommended raising GST rates to 18% from the current 5% for electric vehicles priced between 2 million and 4 million rupees ($23,000-$46,000). For vehicles exceeding $46,000, the panel proposed a 28% tax rate, citing that such cars serve the "upper segment" of society and are primarily imported rather than domestically manufactured.
However, Modi's administration has simultaneously decided to eliminate the 28% tax bracket entirely, according to a government source familiar with the discussions. This leaves the GST Council with options to either apply the 18% rate to luxury EVs or place them in a newly proposed 40% category designated for certain luxury goods.
India's GST Council, headed by the federal finance minister with representation from all states, will review these proposals during meetings scheduled for September 3-4. The council holds final decision-making authority on tax rate implementations.
The Indian electric vehicle market currently represents approximately 5% of total car sales from April to July this year. Despite its small size, the sector has experienced substantial growth, with EV car sales increasing 93% to 15,500 units during that same 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," the tax panel's document stated, as reported by Reuters.
The proposed changes could have limited impact on domestic manufacturers such as Mahindra & Mahindra and Tata Motors, as their vehicle offerings above the 2 million rupee threshold remain relatively scarce.
Foreign automakers with premium EV offerings face greater potential impact. Tesla recently launched its Model Y in India with a base price of $65,000, while Mercedes-Benz, BMW, and BYD also market high-end luxury electric vehicles in the country.
Current market data shows Tata Motors leading India's electric car segment with nearly 40% market share as of July, while Mahindra holds 18%. BYD maintains a 3% market share, with Mercedes and BMW collectively accounting for 2%. Tesla is currently accepting bookings but has not yet begun deliveries.
Tesla has established two showrooms in India in recent months, following years of criticism from CEO Elon Musk regarding India's approximately 100% tariffs on imported vehicles. The proposed GST tax increases would be applied in addition to these existing import tariffs, further elevating the cost of Tesla vehicles for Indian consumers.
The GST Council secretariat did not respond to Reuters' requests for comment on the proposals.