Auto sector wants EV incentives, GST clarity in Budget 2026
What's the story
The Indian automobile industry has witnessed a strong performance in the October-December 2025 quarter, thanks to improved affordability, a revival in rural demand, and sustained festive buying. The sector is now looking forward to the Union Budget 2026, which will be presented on February 1. The industry is seeking continued electric vehicle (EV) incentives, Goods and Services Tax (GST) benefits, and duty exemptions in this budget.
Cost concerns
Rising raw material costs could impact margins
Despite the growth, experts have warned that rising raw material costs could put pressure on margins in the coming quarters. Saurabh Agarwal, Partner and Automotive Tax Leader at EY India, stressed the need for steady policy support to maintain a clear GST advantage for EVs. He said this is crucial to keep EVs affordable and investments viable amid recent ICE rate changes narrowing the gap.
Targeted incentives
PM e-Drive scheme incentives should target high-impact segments
Agarwal also emphasized that demand incentives under the PM E-DRIVE scheme should be targeted at segments where electrification has the highest impact. These include public transport, shared mobility, commercial fleets, and last-mile delivery. He stressed that rapid adoption in these areas is critical to achieving a 30% EV penetration target by 2030.
Previous budget
Budget 2025's impact on the auto industry
The Budget 2025 had removed import duties on 35 key EV battery components and critical minerals. It also allocated ₹2,819 crore under the Auto Production-Linked Incentive (PLI) scheme to boost domestic manufacturing. Further, ₹4,500 crore was allocated for the PM E-DRIVE scheme to expand EV charging infrastructure. The budget also raised investment and turnover limits for MSMEs by 2.5 times with an increased credit guarantee cover.
Future expectations
Industry expectations from Budget 2026
From the upcoming Budget 2026, the industry expects protection of GST advantage for EVs, continuation of incentives under PM E-DRIVE, and extension of duty exemptions on critical battery inputs. They also seek support for domestic rare-earth magnet production and a stronger push for localization of EV components. Policy continuity for both EV and ICE segments is also expected along with sustained support for R&D, MSMEs, and supply-chain development.