GST on Flex-Fuel Vehicles: Current Position and Policy Outlook

An illustration depicting a green flex-fuel vehicle next to a fuel pump with a leaf graphic, emphasizing GST on flex-fuel vehicles and their role in sustainable mobility.

The Indian Government has been actively promoting alternative fuels as part of its sustainable mobility agenda. Among these, flex-fuel vehicles—capable of running on more than one type of fuel such as ethanol-blended petrol—have emerged as a key pillar in reducing dependency on fossil fuels and addressing environmental concerns.

Despite the environmental and strategic benefits, these vehicles currently attract a high GST rate of 28%, similar to traditional internal combustion engine (ICE) vehicles. This has raised concerns over policy alignment, affordability, and promotion of green technology.

Bar chart illustrating GST percentages across different fuel types: Flex-Fuel (28%), Electric Vehicles (5%), and Hydrogen (12%).

Present GST Rate Structure

As per prevailing GST law and in absence of a specific exemption or concessional rate notification:

  • Flex-Fuel Vehicles are classified under the standard category of motor vehicles, taxed at 28% GST, as per Notification No. 1/2017 – Central Tax (Rate).
  • No separate category or concessional rate has been prescribed for flex-fuel vehicles under the current rate schedule.

Relevant Provisions:

  • Section 9(1) of CGST Act, 2017 – Levy and collection of GST.
  • Section 11(1) – Power to grant exemption via notification, upon recommendation of the GST Council.

Government’s Efforts to Promote Alternative Fuels

As highlighted in the Lok Sabha Unstarred Question No. 1309 (July 28, 2025), the Government has taken several measures to promote alternative fuels:

  1. Mandating fuel retailers to install facilities for alternate fuels like CNG, biofuels, and electric vehicle charging stations.
  2. Prescribing 5% GST on ethanol and biodiesel supplied to Oil Marketing Companies (OMCs).
  3. Notifying emission norms for ethanol, hydrogen, and other green fuels.

However, the high GST rate of 28% on flex-fuel vehicles remains a bottleneck in aligning fiscal policy with the sustainability roadmap.

Policy Proposal: Request for GST Rate Reduction

The Ministry of Heavy Industries has formally appealed to the GST Council to reduce the GST rate on flex-fuel vehicles. The key requests are:

  • Reduce GST from 28% to 12%, and ideally to 5%, to match the concessional rate given to electric vehicles.
  • Align tax policy with the broader green mobility goals of the Government.

Status:

  • As of now, no decision has been taken by the GST Council and no notification has been issued to reduce the rate on flex-fuel vehicles.

Analysis

ParameterFlex-Fuel VehiclesElectric VehiclesHydrogen Vehicles
Current GST Rate28%5%12%
Fuel SourceEthanol BlendBattery ElectricHydrogen Cells
Government PromotionModerateHighEmerging
Policy Conflict?Yes – High tax rate deters adoption

The policy misalignment between the Government’s environmental objectives and GST rate treatment presents a barrier to mass adoption of flex-fuel vehicles. A rationalized rate could unlock demand, support domestic manufacturing, and promote ethanol-based fuels, especially in sugarcane-producing states.

Conclusion

While the promotion of flex-fuel vehicles is clearly on the Government’s agenda, the current GST structure acts as a deterrent. A decision by the GST Council to rationalize the tax rate is awaited. Until then, these vehicles remain taxed at par with conventional petrol/diesel vehicles, despite being cleaner alternatives.

Stakeholders and industry participants should continue to monitor developments and consult their tax advisors or Chartered Accountants for compliance and planning.