GST Cut Boosts Petrol, Diesel Sales, Slows EV Penetration Growth In 2025

January 5, 2026

Kia Carens Clavis EV & Hyundai Creta Electric front

GST cut boosts ICE sales, slowing EV penetration growth despite rising volumes

India’s electric vehicle market continued to expand in absolute numbers in 2025 but its share of overall vehicle sales faced pressure after a reduction in GST rates on petrol and diesel vehicles from October. While EV volumes recorded healthy year-on-year growth, the narrowing price gap between internal combustion engine vehicles and EVs led to a resurgence in conventional vehicle demand, particularly in the final quarter of the year.

According to data from Vahan, total registrations of battery-powered electric vehicles across segments – including two-wheelers, three-wheelers, cars and SUVs – rose 16 percent to 22.7 lakh units in 2025, compared with 19.5 lakh units in 2024. However, EV penetration trends varied significantly across segments following the GST cut.

In the two-wheeler segment, electric models gained traction through most of the year, with penetration rising from 6 percent in 2024 to a peak of 8.1 percent during the January–September period of 2025. This momentum softened in the December quarter, the first full quarter after the GST reduction for ICE vehicles. As a result, overall electric two-wheeler penetration for the year settled at 6.3 percent.

A similar pattern was observed in the passenger vehicle segment. EV penetration, excluding hybrid models, improved from 2.5 percent in 2024 to nearly 4 percent in 2025, supported by a wider range of models and increased availability. However, the lower relative pricing of petrol and diesel cars post-GST cut limited further gains in market share toward the end of the year.

The three-wheeler segment stood out as the strongest performer. Electric three-wheeler penetration, excluding e-rickshaws, rose sharply from 12 percent in 2024 to 18 percent in 2025, highlighting the segment’s structural shift toward electrification. Including e-rickshaws, which accounted for around 70 percent of electric three-wheeler sales, the segment continued to see strong adoption driven by lower operating costs and fleet usage.

In volume terms, electric two-wheeler registrations increased 11 percent year-on-year to 12.8 lakh units in 2025. Electric passenger vehicle sales recorded the fastest growth, surging 77 percent to 1.8 lakh units, aided by aggressive expansion by existing manufacturers and the entry of new players. Electric three-wheeler volumes rose 15 percent to 8 lakh units, up from 6.9 lakh units in 2024.

Overall, while EV sales growth remained robust across segments, the post-GST cut period underscored the sensitivity of EV adoption to pricing dynamics. The resurgence of petrol and diesel vehicles highlights the continued importance of fiscal incentives and cost parity in sustaining EV penetration growth.