Auto industry seeks EV incentives, charging infrastructure, rural support ahead of Union Budget 2026

EVs attract a concessional 5% GST rate.

• Automakers seek stronger EV incentives and rationalised duties in Union Budget 2026.
• Retail vehicle sales grew moderately in 2025, with EV penetration still limited.
• Industry calls for increased rural spending and quicker charging infrastructure expansion.

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As Union Budget 2026 approaches, the automotive industry stakeholders are seeking stronger electric vehicle (EV) incentives, rationalised duty structures, sustained rural spending and faster expansion of charging infrastructure.

Retail sales data from the Federation of Automobile Dealers Associations (FADA) shows moderate growth across vehicle segments in calendar year (CY) 2025. Two-wheeler sales rose 7.24% year-on-year (y-o-y) to 2,02,95,650 units, while passenger vehicle (PV) retails grew 9.70% y-o-y to 44,75,309 units. Commercial vehicle (CV) sales increased 6.71% y-o-y to 10,09,654 units, and three-wheeler retails expanded 7.21% y-o-y to 13,09,953 units.

Volvo Car India Managing Director Jyoti Malhotra said policy continuity and duty rationalisation will be important as the industry adapts to GST changes and the ongoing transition to electrification.

"As the automotive industry looks ahead to the upcoming Union Budget 2026, continuity and clarity will be critical. Following the implementation of GST reforms, the sector stands at a pivotal inflection point, where sustained and predictable policy support can help accelerate recovery and stimulate long-term demand," Malhotra said. The executive also called for rationalisation of the duty structure for EVs, incentives for global automakers investing in sustainable mobility, and expansion of charging infrastructure.

Under GST 2.0, internal combustion engine (ICE) cars and two-wheelers fall under two tax slabs -- 18% and 40%. Three-wheelers and commercial vehicles are taxed at 18%. There is currently no cess on automobiles under the revised GST structure. EVs continue to attract a concessional 5% GST rate.

Earlier, ICE cars were taxed at 28% GST along with a cess ranging from 1% to 22%, depending on vehicle length, engine capacity and body type, resulting in an overall tax burden of 29% to 50%. ICE two-wheelers attracted 28% GST plus a cess of up to 3%, taking the effective tax rate to 28%-31%. ICE three-wheelers and CVs were taxed at a flat 28% GST without any cess.

According to JSW MG Motor India Managing Director Anurag Mehrotra, the Union Budget 2026 should continue supporting infrastructure investment due to its role in logistics and economic activity.

"From Union Budget 2026, we anticipate enablers for continued investment in infrastructure, as the logistic industry continues to contribute significantly to the GDP." On EVs, Mehrotra sought stronger consumer-facing incentives, rationalised duties on EV components, and additional support for localisation, while noting the need for fiscal backing to expand charging infrastructure.

EV penetration remains limited across most segments. In CY25, electric models accounted for 6.3% of two-wheeler retails, 4% of PV retails, and 1.55% of CV retails. The three-wheeler segment recorded significantly higher electric penetration at 60.9% during the year.

Ultraviolette Automotive CEO and Co-Founder Narayan Subramaniam said that the Union Budget 2026 should focus on strengthening the electric two-wheeler ecosystem under the PLI framework.

"As India aspires to lead the global EV transition, the Union Budget 2026 must recognise the strategic importance of strengthening the entire electric two-wheeler ecosystem through incentives and subsidies for all under the PLI Scheme that will further support advanced battery research, indigenous technology development, and innovation-driven manufacturing," Subramaniam noted.

The Union government has allocated Rs 2,000 crore under the PM E-DRIVE scheme to expand public EV charging infrastructure, with chargers planned at government offices, hospitals, railway and metro stations, airports, malls, bus depots, fuel stations, toll plazas and highways.

Automakers have also announced charging infrastructure investments. Maruti Suzuki has said it invested nearly Rs 250 crore to build a charging network ahead of the launch of its first electric SUV, the e Vitara. Mahindra plans to set up 250 fast-charging stations with over 1,000 charging points by CY27. Tata Motors has stated it operates a network exceeding 2,00,000 charging points across home, community and public charging through partners.

Grant Thornton Bharat Partner and Auto and EV Industry Leader Saket Mehra said that the Union Budget 2026 should prioritise rural spending, trade facilitation and the energy transition.

He said continued allocations toward rural employment, infrastructure and income-linked schemes remain important for PV and two-wheeler demand. According to Mehra, faster progress on trade negotiations could strengthen auto component exports and reduce geographic concentration risks. He added that continued support for PM E-DRIVE and higher allocations for power distribution upgrades beyond major cities would be relevant for broader EV adoption.