At its peak in FY2012-13, diesel cars made upto 58 percent of new car sales in India, which has now come down to around 18 percent.
The diesel car segment could get another blow with the Minister of Road Transport & Highways, Nitin Gadkari stating that he may propose an additional hike of 10% in GST on diesel passenger vehicles to Finance Minister, Nirmala Sitharaman this evening. He was speaking at the 63rd SIAM Annual Convention, in New Delhi.
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Update: In a tweet following media reports, Gadkari stated “There is an urgent need to clarify media reports suggesting an additional 10% GST on the sale of diesel vehicles. It is essential to clarify that there is no such proposal currently under active consideration by the government. In line with our commitments to achieve Carbon Net Zero by 2070 and to reduce air pollution levels caused by hazardous fuels like diesel, as well as the rapid growth in automobile sales, it is imperative to actively embrace cleaner and greener alternative fuels. These fuels should be import substitutes, cost-effective, indigenous, and pollution-free.”
The current GST structure in the country on passenger vehicles ranges between 28% GST and 1% cess to around 28% GST and 22% cess. This is dependent on the size of the car, engine capacity, and fuel type among others.
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If the government goes ahead with the proposal, it would effectively make taxes on diesel cars manufactured in India around 60%, which would make it amongst the highest in the world.
The share of diesel cars in India has slowly come down with many automakers pulling the plug on popular models or totally exiting the segment altogether. The higher cost of meeting the emission norms along with the higher tax structure has widened the gap between the petrol and diesel models.
At its peak in FY2012-13, diesel cars made upto 58 percent of new car sales in India, which has now come down to around 18 percent.
Gadkari has asked the auto industry to reduce the production of diesel vehicles. “I want the auto industry to take suo moto initiative to reduce diesel vehicle production. If you don’t reduce, we have to increase taxes. We will increase taxes so much, you will find it difficult to sell diesel vehicles,” he cautioned. The additional tax could be introduced as a pollution tax.
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At present, the price of a litre of petrol comes to Rs 96.72 (in New Delhi) and Rs 86.92 for diesel. CNG on the other hand is priced at Rs 82.50.
| Vehicle Category | GST | Compensation Cess | Total Tax Payable |
| Electric Vehicles | 5% | NIL | 5% |
| Hydrogen Fuel Cell Vehicles | 12% | NIL | 12% |
| Three Wheeled Vehicles | 28% | NIL | 28% |
| Two-Wheelers upto 350cc Engine | 28% | NIL | 28% |
| Two-Wheelers >350cc Engine | 28% | 3% | 31% |
| Passenger Vehicles (Petrol, CNG, LPG) Upto 4m in length and Upto 1200cc engine | 28% | 1% | 29% |
| Passenger Vehicles (Diesel) Upto 4m in Length and Upto 1500cc engine | 28% | 3% | 31% |
| Passenger Vehicles (Upto 1500cc engine) | 28% | 17% | 45% |
| Passenger Vehicles (Above 1500cc engine) | 28% | 20% | 48% |
| Passenger Vehicles popularly known as SUVs (Above 4m in length, above >1500cc engine & >170 mm Ground Clearance) | 28% | 22% | 50% |
| Hybrid Passenger Vehicles (upto 4m and upto 1200 cc engine Petrol) or (upto 4m and upto 1500 cc engine Diesel) | 28% | NIL | 28% |
| Hybrid Passenger Vehicles | 28% | 15% | 43% |
| (Above 4m or above 1200 cc engine Petrol or | |||
| above 1500 cc engine Diesel) |
GST as on May 3, 2023: Source: SIAM
Ethanol blending
On the other hand, Gadkari has been pushing the cause of Ethanol and Methanol blending. At present, the government has outlined a phased rollout plan for achieving 20 percent ethanol blended gasoline (E20) by April 2023 and ensuring its widespread availability by April 2025.
It further emphasises the introduction of E20 material-compliant and E10 engine-tuned vehicles starting from April 2023, followed by the production of E20-tuned engine vehicles from April 2025.
This means car manufacturers will now work towards getting the engines certified for compatibility with E20 fuel. Right now, only a few cars are certified for E20 and so is the fuel availability. It is expected that when the fuel becomes widely available commercially, there will be a separate gun, like for high-octane petrol.
