After the GST 2.0-driven recovery in late 2025, the sector looks to the February Budget for continued EV support and tax stability
India’s auto industry has reported strong volumes in the October-December 2025 quarter. GST 2.0 rate rationalisation improved affordability and boosted demand across passenger vehicles, two-wheelers, and commercial vehicles.
This recovery now directs attention to the Union Budget on 1 February 2026. The sector seeks protection of current tax benefits for electric vehicles along with policy continuity.
GST 2.0 Drives Recent Recovery
GST 2.0 reduced rates for several segments and removed complexities from earlier structures. Lower taxes increased consumer confidence and supported rural demand revival. The festive season buying further lifted sales.
Also Read: India Auto Sector Eyes Strong Multi-Year Recovery on Policy Boost
EV Incentives Remain Key Expectation
The industry wants to maintain the 5 per cent GST rate on EVs compared to higher rates on ICE vehicles. Recent changes narrowed the gap between EV and petrol/diesel options. Continued EV incentives under schemes like PM E-DRIVE target public transport, shared mobility, commercial fleets, and last-mile delivery.
Stakeholders push for duty exemptions on battery inputs and support for domestic rare-earth magnet production. Localisation of EV components receives emphasis to reduce import reliance.
Experts note limited scope for further broad GST rate changes after recent reforms. Focus shifts to preserving EV tax advantages, including on charging infrastructure and battery swapping.
Beyond the Spec Sheet
EV incentives lower upfront costs for buyers in urban and semi-urban areas. This improves access to cleaner mobility options for daily commutes and family travel.
Lower running costs from sustained tax benefits encourage a shift to electric for goods movement in the last-mile delivery. Fleets gain reliability through predictable policy support and reduced fuel expenses.
Charging infrastructure expansion becomes viable with clear tax treatment. Users experience fewer range concerns on highways and inter-city routes. Behaviour changes as ownership costs stabilise and public transport electrification accelerates.
