Chennai: Mixed views were expressed by electric vehicle (EV) makers on the impact of the reduction in Goods and Services Tax (GST) on petrol/diesel-powered vehicles on EVs. The GST reduction has narrowed the price gap between internal combustion engine (ICE) and electric vehicles.
While the GST rate for EVs has been retained at 5 per cent, the rates for ICE vehicles, two, three, and four wheelers, and commercial vehicles, have been cut, ranging from 7 percent to 13 per cent, 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 have seen their GST increased by 9 per cent to 40 per cent.
“The GST reduction announced has indeed lowered the upfront price gap between diesel and electric vehicles in several categories. Trucks, small commercial vehicles, and three-wheelers may see about a 7–8 per cent price relief on ICE models, while tractors may get cheaper by around 6 percent,” M.A.M. Arunachalam, Executive Chairman of Tube Investments of India Ltd and Chairman of TI Clean Mobility Private Ltd, told this writer.
“EVs continue at a 5 per cent GST rate, so their upfront prices remain unchanged,” he added. Part of the Rs.778 billion turnover Murugappa Group, TI Clean Mobility, a subsidiary of Tube Investments, rolls out electric three wheelers.
According to Murugappan, in the short term, this does make ICE vehicles more attractive for some segments, especially where buyers are very sensitive to the initial purchase price and where charging infrastructure is still evolving.
“But if we look at lifecycle economics, the picture remains more nuanced across categories. Commercial operators who consider lifecycle cost still find EVs offer a strong value proposition in high-utilisation, point-to-point, and return-to-base operations such as city logistics and passenger mobility,” Murugappan remarked.
“The transition to electric may slow, but it will not reverse — particularly in three-wheelers and organised fleet segments where the economics already favour electric,” he added. But in the case of electric two wheelers, the picture is slightly different.
“The reduction in GST for ICE two wheelers and the resultant lower on-road prices are likely to affect EV sales, given constraints such as difficulty in getting finance, unclear resale value, and lack of battery charging infrastructure across the country,” said Anirudh Ravi Narayanan, CEO and Co-Founder of BNC Motors.
According to him, the impact will be higher in the case of entry-level EV two wheelers priced at Rs.1.20 lakh and below.
“However, last-mile goods delivery companies will continue to buy EVs as they look at the total cost of operations rather than just the initial price,” Narayanan said.
Earlier, the GST on ICE two wheelers was 28 percent, while for EVs it was 5 percent. The huge difference, along with subsidy schemes, powered EV two wheeler sales.
Now, the GST difference between ICE and EV two wheelers is 13 per cent. Meanwhile, CRISIL, in a report on the GST reduction impact on the automobile sector, said that in the case of ICE two-wheelers, prices of almost all categories, except one, will reduce by about 7.8 per cent.
Prices of premium two-wheelers with engines above 350cc will increase by about 6.9 per cent. According to CRISIL, for ICE and hybrid passenger cars, 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 petrol engines under 1,200 cc or diesel engines under 1,500 cc (e.g., Punch) will decline by about 8.5 per cent.
Meanwhile, prices of large sedans (e.g., Virtus), compact SUVs (e.g., Brezza), mid-sized SUVs (e.g., Creta), and multi-purpose vehicles (MPVs) with engines under 1,500 cc (e.g., Ertiga) will reduce by about 3.5 percent, CRISIL said.
Further, prices of premium SUVs (e.g., XUV700) and MPVs with engines above 1,500 cc (e.g., Innova) will fall by about 6.7 percent. In the case of ICE tractors and fuel cell motor vehicles, including hydrogen vehicles, prices will decline by about 6.3 percent.
Meanwhile, prices of three-wheelers, light commercial vehicles (LCV), medium and heavy commercial vehicles (MHCV), and buses will reduce by about 7.8 per cent. 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 18 percent GST slab, CRISIL said.
From a domestic sales perspective, in fiscal 2026, passenger vehicles may see marginal uptick (lower single-digit growth), while two wheelers could see higher single-digit growth. Tractors will continue to see traction with 4-7 percent 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 per cent GST slab, leading to a reduction in prices of components previously taxed at 28 per cent by about 7.8 per cent, 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 per cent to 5 per cent will also lead to a decline in operating costs for transporters.
“The 5 per cent tax without ITC (input tax credit) continues, which will not have an impact on small fleet operators. Meanwhile, large fleet operators will no longer have to pay 18 per cent GST with ITC instead of 12 per cent GST with ITC,” the report said.
In a different report, CRISIL predicted two-wheeler sales volume will grow 5-6 per cent this fiscal, while that of passenger vehicles may rise 2-3 per cent. Sales of two-wheelers had slumped in the first quarter of this fiscal, especially entry-level commuter models, amid regulatory disruptions from On-Board Diagnostics II (OBD2) implementation and the early, heavy onset of the southwest monsoon, which temporarily disrupted rural activity and dampened demand.
Passenger vehicles and small car sales also slowed in June-August 2025 due to affordability issues, shortage of rare-earth minerals, and deferral of purchases in anticipation of GST rate cuts. Beyond demand revival, simplified slabs will also streamline compliance and lower logistics costs through smoother interstate taxation, supporting profitability across the value chain, CRISIL said.
Anuj Sethi, Senior Director at Crisil Ratings, said: “With the GST cut fully passed on, vehicle prices are expected to drop 5-10 percent (Rs 30,000–60,000 on small passenger vehicles; Rs 3,000–7,000 on two-wheelers). With the rate cut coinciding with Navratri and the festive season, sentiment would get a timely boost. Coupled with new launches, softer interest rates, and improved affordability, this should drive a stronger second half for the automobile sector.”
Meanwhile, a longtime industry watcher, not wanting to be named, told this writer that the exact impact of the GST reduction will be known after the festive season.
