Business EconomyPosted at: Sep 5 2025 12:11AM


GST reduction may impact sales of electric two wheelers

By Venkatachari Jagannathan
Chennai, Sep 4 (UNI) The reduction in the Goods and Services Tax (GST) for automobiles powered by internal combustion engine (ICE) while leading to their increased sales due to lower prices, could conversely affect the sales of electric vehicles (EV), said experts.
The Indian government today announced rationalisation and reduction of the GST rates. While the GST rate for EVs has been retained at 5%, the rates for ICE vehicles-two/three/four wheelers and commercial vehicles have been cut ranging from 7% to 13% depending on the class of vehicle. However, there is one exception to the rate reduction/retention -- two-wheelers with a cubic capacity of 350cc and above, the GST has been increased by 9% to 40%.
“The reduction in GST for ICE two wheelers and the resultant lower on-road prices is likely to affect the sales of EVs given the constraints like difficulty in getting finance, unclear resale value, lack of battery charging infrastructure across the country,” Anirudh Ravi Narayanan, CEO and Co-Founder, BNC Motors told UNI.
According to him, the impact will be higher in the case of entry level EV two wheelers priced at Rs.1.20 lakh and lower.
Earlier, the GST on ICE two wheelers was 28% and for EVs it was 5%. The huge difference as well as the subsidy schemes powered EV two wheeler sales. Now the GST difference between ICE and EV two wheelers is 13%.
Meanwhile, CRISIL in a report on GST reduction impact on the automobile sector has said in the case of ICE two-wheelers, prices of almost all categories, except one, will reduce about 7.8%.
Prices of premium two-wheelers with >350 cc engine will increase about 6.9%.
According to CRISIL, in respect of ICE and hybrid passenger cars the prices of entry-level hatchbacks (e.g., Wagon R), premium hatchbacks (e.g., Swift), compact sedans (e.g., Swift Dzire), and sub-compact sport utility vehicles (SUVs) with <1,200 cc petrol or <1,500 cc diesel engines (e.g., Punch) will decline about 8.5%.
Meanwhile, prices of large sedans (e.g., Virtus), compact SUVs (e.g., Brezza), mid-SUVs (e.g., Creta), and multi-purpose vehicles (MPVs) with <1,500 cc engines (e.g., Ertiga) will reduce about 3.5%, CRISIL said. Further, prices of premium SUVs (e.g., XUV 7OO) and MPVs with >1,500 cc engines (e.g., Innova) will fall about 6.7%.
In the case of ICE tractors and fuel cell motor vehicles, including hydrogen vehicles, prices will decline about 6.3%. Meanwhile, prices of three-wheelers, light commercial vehicles (LCV), medium and heavy commercial vehicles (MHCV) and buses will reduce about 7.8%.
The above analysis across segments does not consider any pass-through that may happen from automotive component manufacturers to original equipment manufacturers (OEMs) in the form of GST reduction as all automotive components have been brought under the ambit of 18%, CRISIL said.
For a domestic sales perspective, in fiscal 2026, passenger vehicles may see a marginal uptick (lower single-digit growth), while two wheelers could see higher single-digit growth.
Tractors will see a continued traction with 4-7% growth, while commercial vehicles may see flattish-to-marginal-positive growth, CRISIL added. The automotive aftermarket segment will also benefit as all components will now be brought under the 18% GST slab, thereby leading to a reduction in prices of components taxed at 28% by about 7.8%, the CRISIL report notes.
On the impact of GST changes on the road freight transportation sector, CRISIL said the reduction in third-party insurance on goods carriages from 12% to 5% will also lead to decline in operating costs for transporters.
“The 5% tax without ITC (input tax credit) continues, which will not have an impact on small fleet operators. Meanwhile, large fleet operators will not have to pay 18% GST with ITC instead of 12% GST with ITC,” the report said.
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