Key Insights | The Fiscal Impact of India’s EV Transition: Tax Revenue Losses Go Beyond Fuel

The uptake of battery-driven electric vehicles (EVs) has been rising in India. EV sales have increased from 0.6% of total vehicle sales in Financial Year (FY) 2018–19 to 7% in FY 2023–24. This trend is expected to continue, as India aims for EVs to make up 30% of all vehicle sales by 2030.

In hard-to-abate sectors such as transport, where clean technologies have not matured and are not yet commercially viable, incentives are a common tool to promote widespread EV uptake. Both Central and State governments have made concerted efforts to incentivise EV adoption. In addition to budgetary support through demand and manufacturing incentive schemes, the Central government offers tax incentives in the form of concessional tax rates on EV purchases. Many State governments further encourage EV adoption by setting specific targets, offering demand incentives, and providing tax exemptions on vehicle registrations. While budgetary provisions consist of a fixed implementation period and allocation, tax incentives often lack sunset clauses and predefined notional outlays.

While these incentives are well-intentioned, promoting EVs through tax concessions comes with opportunity costs, as the revenue loss limits the government’s capacity to fund other spending requirements. Moreover, the continued reliance on tax concessions raises concerns about the long-term viability of this approach to boost EV adoption.

This paper examines the impact of EV uptake on three tax streams: Excise and Value Added Tax (VAT) losses from fuel switch to electricity (which is a well-known issue), revenue forgone from concessional Goods and Services Tax (GST) rates and Compensation Cess exemptions; and state losses from Motor Vehicle (MV) tax exemptions. The study focuses on India’s passenger car and two-wheeled vehicle segments to illustrate how impacts on government revenue collection vary with vehicle segment, owing to differences in vehicle price, fuel mix, tax rate, and the scale and rate of EV penetration.