Iran crisis revives push for GST cuts on flex-fuel cars as India looks to reduce fuel import risks
The war in the oil-rich Gulf region has revived discussions on reducing India’s dependence on imported fossil fuels, with fresh industry pressure building for rationalisation of the goods and services tax (GST) for flex-fuel vehicles, sources said. The issue is likely to be taken up in the next GST Council meeting, as policymakers reassess energy security strategies amid volatile crude supply routes.
“Industry has been asking the government for a reduction in GST on flex-fuel vehicles to make them more affordable and accelerate adoption. At present, GST ranges between 18 percent and 40 percent depending on the vehicle segment, and the industry is asking to bring it down to around 5 percent,” a person aware of the development told Moneycontrol.
Flex-fuel vehicles, which run on petrol blended with ethanol, are currently slightly more expensive than conventional models due to additional engine and material requirements to handle higher ethanol blends.
“The idea behind this proposal is to reduce the overall cost of ownership of flex-fuel vehicles, which are currently slightly more expensive. Lower GST will help drive consumer adoption and support the scale-up of ethanol-based mobility,” he added.
Flex-fuel vehicles currently attract GST in line with conventional petrol and diesel cars, including compensation cess, resulting in an effective tax burden ranging from about 18 percent for small cars to over 40 percent for larger vehicles.
“Industry has submitted the proposal to the government and has had a couple of meetings on this issue,” he said.
The development ties into a broader policy rethink, where flex-fuel vehicles are being positioned alongside ethanol blending and other alternative fuel strategies as a hedge against global supply shocks.
With India importing over 80 percent of its crude oil, and ethanol emerging as a domestically produced substitute derived from agricultural feedstocks, the current geopolitical situation is likely to accelerate government evaluation of tax incentives and policy support for ethanol-linked mobility solutions.
