The GST panel has proposed steep increases in consumer levies on luxury electric cars priced above Rs 40 lakh, a Reuters report said on Tuesday citing a government document.

The move could impact sales of carmakers such as Tesla, Mercedes-Benz, BMW and BYD, the news agency reported.

The high-powered GST Council chaired by Union finance minister Nirmala Sitharaman will meet on Wednesday and Thursday in Delhi to discuss moving to a two-slab GST.

Prime Minister Narendra Modi had in his Independence Day speech promised major GST reform. The government has recommended hefty cuts in the GST that could make everything from shampoos to electronics cheaper.

The government is trying to boost domestic consumption at a time when relations with the US have soured due to high tariffs.

The panel tasked with making rate suggestions to the GST Council has called for raising taxes on electric cars, the document detailing its recommendations showed, Reuters reported.

The panel recommended raising the GST rate to 18 per cent from 5 per cent currently for EVs priced between Rs 20 lakh and 40 lakh.

It has also proposed hiking the tax to 28 per cent for cars priced above Rs 40 lakh, saying that such vehicles cater to the "upper segment" of society and are largely imported rather than manufactured domestically.

The government has simultaneously decided to do away with the 28 per cent tax rate altogether, leaving the GST Council with the option to increase the tax on EVs to 18 per cent or put them in the newly planned 40 per cent category carved out for certain luxury goods, Reuters quoted an Indian government source familiar with the discussions as saying.

The GST Council secretariat did not respond to Reuters queries.

"The uptake of electric vehicles is increasing and while, the low rate of 5% is to incentivise faster adoption of electric vehicles, it is also important to signal that higher-priced EVs can be taxed at higher rates," said the document, detailing the tax panel's recommendations.

The proposal could affect domestic EV makers such as Mahindra and Tata Motors, though their offerings above the Rs 20 lakh price range are limited.

Foreign automakers stand to be hit harder. Tesla just launched its Model Y in India with a base price of $65,000 (around Rs 57 lakh), while Mercedes-Benz (MBGn.DE), BMW (BMWG.DE), and BYD also offer top-end luxury electric cars.

Tesla has opened two showrooms in India in recent months, years after Elon Musk repeatedly criticised high tariffs of roughly 100 per cent on imported cars. The GST is applied on top of these tariffs, further increasing costs of Tesla cars.

“The planned roll out of the next generation GST reforms with the planned Council meeting tomorrow and day after will set an economy absolutely open and transparent in the coming months and with further reduction in compliance burden, making it easier for small businesses to thrive," Sitharaman said on Tuesday.