NEW DELHI, March 26 (Reuters) - India's Maharashtra

state has withdrawn a proposal for a 6% sales tax on electric

vehicles priced above $35,000 to encourage adoption at a time

when EV sales are still nascent in the country - the world's

third-largest auto market.

"We are disincentivising (EVs in the luxury segment) without

any reason ... we will not go ahead with this," Devendra

Fadnavis, chief minister of the western state, home to India's

financial hub Mumbai, told lawmakers in the state assembly on

Wednesday.

India's EV market is small, making up about 2% of total car

sales of 4 million last year, as worries related to higher

pricing and inadequate charging points weigh on adoption. The

federal government wants to increase this to 30% by 2030.

A reversal of the proposal, made weeks earlier, comes as

global EV giant Tesla is gearing up to sell cars in

India where it will compete with homegrown rivals such as

Mahindra & Mahindra and Tata Motors.

Mahindra and Tata already manufacture

EVs in Maharashtra. The state has also attracted investment in

new factories, including for EVs, from Hyundai Motor ( HYMTF )

and Toyota Motor ( TM ).

The new manufacturing facilities will help Maharashtra

become the national capital of electric vehicles, Fadnavis

added.

Maharashtra, one of India's wealthiest states, accounts for

more than 10% of total car and EV sales in the country. It also

has a separate EV manufacturing policy designed to give

incentives to companies to build the cars in the state.

($1 = 85.7150 Indian rupees)