"Currently, CNG two-wheelers attract a 28% levy under the goods and service tax regime, and the heavy industries ministry has suggested to the Union finance ministry for this levy to be reduced to an appropriate level," said one of the two persons cited earlier, both of whom spoke on the condition of anonymity.

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The MHI's suggestion comes just ahead of the Union Budget 2025. Decisions on GST rates are taken by the GST Council, which is headed by the Union finance minister and consists of states' finance ministers or ministers nominated by each state government as members. 

A reduction in tax rates on CNG two-wheelers is likely to boost demand for such vehicles, curbing carbon emissions that are held responsible for global warming with catastrophic consequences.

Queries emailed to the ministries of heavy industries and finance had not elicited a response till press time.

CNG two-wheelers is a sunrise sector, as a little over 38,000 such vehicles were sold in the country in 2024, per data from the government's vehicles registration portal Vahan, compared to about 17 million petrol two-wheelers sold in the same period.

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The data also shows that no CNG two-wheelers were sold in 2021, 2022 and 2023.

But, sales of such vehicles have picked up this year. Till 29 January, more than five thousand CNG two-wheelers were sold, compared to about 1.2 million petrol bikes, the Vahan portal data showed.

The spike in CNG two-wheeler sales since 2024 is led largely by Bajaj Auto, the biggest two-wheeler exporter in the country, which launched a new CNG bike in July 2024, entering a virgin territory as this was the first bike to use CNG, a relatively cleaner and cheaper fuel alternative to petrol and diesel.

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Automaker TVS has also announced its foray into the CNG two-wheeler market with a new scooter to be launched soon. The CNG scooter was showcased at the Bharat Mobility Global Expo earlier this month.

"Automobile is a very price-sensitive market. If there is any reduction in taxation, it is likely to boost demand. Although there is only one CNG-fuelled two-wheeler model in the market so far, a cut in GST, if approved, would help growth in the segment, more so in the bike space, as most brands have already come up with scooters in the EV space. Incentivizing CNG two-wheelers, would complement the growth in alternative fuel space, along with electric mobility, rather than competing with each other. Both these segments would chart their own growth trajectory," said Ashim Sharma, senior partner and business unit head, Nomura Research Institute (NRI) Consulting & Solutions, India.

CNG as a transport fuel has already taken off in the country, with commercial four-wheeler vehicles in cities like Delhi mandatorily transitioning to CNG and private four-wheelers also increasingly taking to it.

In the four-wheeler segment, the share of CNG-run cars is expected to increase from 14% in FY24 to 18% in FY28, even as strong hybrid cars and electric vehicles jostle to gain more customers, according to ratings agency ICRA Ltd. Lower price compared to petrol and diesel and low-cost maintenance make CNG an attractive proposition for vehicle buyers. A similar growth trend is now expected in the CNG two-wheeler space.