Industry lobby seeks GST relief for a different type of hybrids

REEVs are electric vehicles supported by a small internal combustion engine to charge the battery when it is running low. Currently, no Indian manufacturer sells such vehicles in India. They are not classified differently under the Goods and Services Tax (GST) regime. Hybrids attract a tax rate of 18% and 40%, depending on their size.

The Associated Chambers of Commerce and Industry of India (Assocham) has written to the ministry of heavy industries (MHI) that the current tax structure would force automakers to introduce such vehicles at a higher price, as they are generally heavier and bigger in size. Assocham counts Maruti Suzuki India Ltd, Toyota Kirloskar Motors India Ltd, JSW Group and Mahindra and Mahindra Ltd as its members.

Incentives for hybrid vehicles have already divided Indian automakers. Japanese companies, which have mastered this technology, have been lobbying the government to offer concessions to buyers of hybrid vehicles through lower taxation, direct subsidies to consumers, or the waiver of various state and central fees like registration charges. However, Tata Motors Ltd and Mahindra have opposed any incentives to hybrid vehicles, arguing that it will hurt the adoption of pure EVs.

States including Uttar Pradesh, Chhattisgarh, and Rajasthan have removed incentives for hybrid vehicles. Currently, only Chandigarh and Haryana offer incentives for hybrids.

MHI did not respond immediately to an emailed query.

In response to Mint’s queries, an Assocham spokesperson cited that the small internal combustion engine in a REEV helps “eliminate range anxiety inherent” in battery electric vehicles.

“The ICE comes into play only to charge the battery, which helps during long intercity drives and reduces dependence on charging infrastructure. This offers a practical, immediate solution of increasing an EV range while the public charging infrastructure for pure BEVs is still developing across the nation,” Assocham said. It is for this reason that Assocham has requested that REEVs be classified under the 5% GST bracket as applicable to BEVs, it said.

In the 18 November letter addressed to MHI secretary Kamran Rizvi, Assocham said incentivising REEV can help boost the penetration of clean fuel cars in India. The letter was signed by Assocham secretary general Manish Singhal. Mint has reviewed a copy of the letter.

“We are grateful to the Government of India for their support on BEVs in form of GST benefit under the 5% slab and would request proportionate GST consideration for REEVs also,” the letter said, a copy of which was also sent to the Prime Minister’s Office, finance ministry, Niti Aayog and the Union roads ministry.

“Considering their ‘electric-only’ propulsion and alignment with the government’s EV objectives, we respectfully recommend that REEVs be classified under the 5% GST rate, similar to BEVs, on the basis of its propulsion system and emissions profile,” the body told the government.

The industry lobby, founded in 1920, stated that such vehicles can quickly alleviate customer range anxiety by carrying an onboard charger.

“REEVs have the vehicles propelling entirely on battery. The ICE comes into play only to charge the battery during long drives. This offers a practical, immediate solution of increasing an EV range,” the letter said.

The 2025 Global Automotive Consumer Study by Deloitte showed that customers in the country are less interested in buying electric vehicles (EVs) than in 2024. While only 8% of customers surveyed said they would prefer EVs as their next purchase, more than a third of the respondents chose hybrids.

The lobbying for a favourable tax regime for REEVs comes when the country has seen EV penetration fall after the tax rates on internal combustion engine vehicles fell. Electric four-wheeler penetration fell from 5.12% in September to 3.24% in October, the lowest levels since February 2025, according to the Federation of Automobile Dealers Association.

Estimates by Hyundai Motor India suggest that the share of hybrid vehicles in India’s total market will increase from 2% in the financial year 2025 to 14% by FY30 and on par with EVs.

Currently, Maruti Suzuki, Toyota and Honda Cars offer strong hybrid vehicles in the country.

“The government’s broader target for the remaining 70% of vehicles—after the initial 30% electric penetration—is expected to lean heavily toward hybrid or alternate technologies,” Assocham wrote in its letter. “REEVs are uniquely positioned to significantly mitigate climate impact within that 70% segment.”