India Eyes 5% GST on Crude Ethanol to Power Flex-Fuel Vehicles
In a major policy nudge towards cleaner energy, Union Minister Nitin Gadkari has urged the GST Council to reduce the GST on crude ethanol to just 5%, aligning it with the green transport vision. His remarks come amid rising crude imports and the urgent need for affordable, eco-friendly alternatives like flex-fuel technology.
Currently, ethanol production faces disparate GST rates across various raw material stages, making pricing less viable for mass adoption. Gadkari warned that keeping ethanol prices too close to petrol would derail the flex-fuel push.
Why GST Cut on Crude Ethanol Matters
The request to levy only 5% GST on crude ethanol stems from the need to:
- Lower production costs for ethanol-blended fuels
- Accelerate E20 and E85 rollout (20%–85% ethanol blends)
- Help carmakers scale flex-fuel engines
- Reduce dependence on imported petrol and diesel
- Strengthen India’s bio-economy and farmer income
Current GST on Ethanol Inputs
| Product Type | GST Rate |
|---|---|
| Ethanol from molasses | 18% |
| Denatured ethanol for blending | 5% |
| Crude ethanol (unclarified) | 18% (proposed to reduce to 5%) |
| Flex-fuel vehicle purchase | 28% + cess |
➡️ Disparity in input tax rates reduces incentive for large-scale ethanol production.
Gadkari’s Warning: Don’t Price Ethanol Near Petrol
Gadkari cautioned policymakers that price parity with petrol will kill the motivation to shift. Ethanol must remain significantly cheaper than petrol to encourage demand and innovation in flex-fuel infrastructure.
“We are importing ₹16 lakh crore worth of crude oil. Ethanol can help reduce this drastically if we support it through tax reforms.” – Nitin Gadkari
Legal & Policy Background
- As per Notification No. 12/2017-CT(Rate) and 20/2018-CT(Rate), different ethanol types are taxed differently
- National Bio-Energy Policy, 2023 promotes ethanol blending for energy security
- Budget 2024 set the roadmap for E20 by 2025 and E85 beyond 2030
➡️ These goals require tax rationalisation to become economically feasible.
Expert View: “Uniform GST at 5% Can Unlock Ethanol Economy”
CA Arun Goel, Tax Policy Consultant:
“Reducing GST on crude ethanol to 5% is not just tax relief—it’s a strategic energy policy move. It will streamline supply chains and bring long-term savings in oil imports.”
How This Impacts You
If accepted by the GST Council, a uniform 5% GST on crude ethanol will:
- Lower vehicle running costs for flex-fuel users
- Encourage car buyers to choose flex-fuel models
- Help farmers get better prices for ethanol crops
- Promote Make-in-India ethanol infrastructure
FAQs
Q1. What is crude ethanol?
Crude ethanol is unrefined ethanol derived from sugarcane, grains, or biomass used in biofuel production.
Q2. What is flex-fuel?
Flex-fuel vehicles run on a blend of petrol and ethanol (E20 to E85), reducing pollution and fuel import bills.
Q3. What is the current GST on ethanol for blending?
Denatured ethanol used in fuel blending currently attracts 5% GST, but crude ethanol still attracts 18%.
Final Word: Will GST Council Act?
Gadkari’s push for 5% GST on crude ethanol is a litmus test for India’s green transition. If implemented, it could catalyse a flex-fuel revolution and reduce our oil import burden.
✅ Need help understanding GST for your business or ethanol supply chain? Talk to Efiletax experts today!
Summary
Union Minister Gadkari proposes a 5% GST on crude ethanol to promote flex-fuel vehicles and reduce petrol dependence. He warns that ethanol pricing close to petrol could derail India’s biofuel vision. If accepted, the move may reshape India’s green mobility strategy and benefit farmers and automakers alike.