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.
“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.
Industry pushes for deeper tax cuts
The demand is also being positioned as critical for the broader ethanol ecosystem, particularly as India builds surplus production capacity.
“Promoting flex-fuel vehicles through GST rationalisation is important for the broader ethanol ecosystem, as it creates additional demand beyond blending and helps absorb surplus production,” Deputy Director General at All India Distillers’ Association (AIDA), told Moneycontrol.
“If we want flex-fuel vehicles to gain traction at scale, there has to be a level playing field in terms of taxation, especially when compared with other cleaner fuel technologies,” she added.
Government stance
The renewed push comes as policymakers reassess energy security strategies amid ongoing geopolitical uncertainty. Union Minister for Road Transport and Highways Nitin Gadkari has previously urged states to consider reducing GST on flex-fuel vehicles to around 12 percent from current levels of up to 28 percent, highlighting their potential to reduce oil imports and support domestic biofuel ecosystems.
Industry groups, however, are pushing for deeper cuts, arguing that tax parity with electric vehicles – which attract 5 percent GST – will be key to driving adoption and utilising India’s expanding ethanol capacity.
GST Council meet after state elections
A final decision will require approval from the GST Council, which is likely to take up the matter formally in its next meeting.
Timelines for holding the next Goods and Services Tax Council meeting are not firm at this stage. It may be scheduled after the state elections this year, as the broader administrative calendar is taken into account, a source had earlier said.
