Union Budget 2019 – Highlights of the Auto Industry

The effect of the Union Budget 2019 on the Indian auto industry, which is among the top 5 largest in the world, is even more significant post the implementation of the Goods and Services Tax (GST). The tax rates will be different.

The Union Budget 2019 was presented on 5 July 2019 by Nirmala Sitharaman, the Union Finance Minister. Some of the top highlights of the Budget that have impacted the auto industry include: 

  • The Finance Minister announced at the Budget that rural infrastructure will be upgraded and hence, this is great news for the auto sector of the country. This is because, in the Indian auto industry, 15 to 20% of the automobile sales are contributed by rural customers. 
  • The GST attracted by the automotive industry is 28% and as per the latest Budget, this will remain the same. The sector receives a compensation of 0 to 22%. 
  • The customs duty for the auto industry has been raised from 25% to 30%. 
  • The Budget has proposed a 2% grant exclusively for automobile component makers. 
  • The GST for Electric Vehicles (EVs) has been brought down to 5% from 12%. This is being done in order to encourage the use of electric vehicles. 
  • Moreover, the customs duty on parts of electric vehicles has been exempted.  
  • The tax deduction has been changed on the interest component that needs to be paid for auto loans for buying electric vehicles. The Budget has proposed certain incentives for auto loans for the promotion of electric cars in the country.  
  • It has been mentioned that with an investment of Rs.80,250 crore, rural roads of 1.25 lakh km will be upgraded. This investment is expected to improve the sales of commercial vehicles. 

India’s automotive industry is indisputably one of the largest in the world, ranking among the top 5, to be exact. In terms of 2-wheelers, the world’s largest market is here in India. The automobile industry contributes to nearly 7% of the country’s GDP and churns out an average number of 24 million vehicles annually, while also providing jobs to over 29 million people. Taking all this into account, the Union Budget 2018 is very significant for India’s automobile industry, especially after the implementation of the GST. Here are some expectations which the automotive industry holds for the upcoming budget which is to be released soon.

  • Currently, sale of passenger vehicles come under various tax regulations under GST. Small petrol cars with an engine capacity below 1,200cc attract 28% GST + 1% cess; Diesel cars with engine capacity below 1,500cc also draw 28% GST + 3% cess; Hybrid cars (incl. mid, large, and SUVs) draw 15% cess. However, ahead of the budget, Society of Indian Automobile Manufacturers (SIAM) has proposed that the government reform the current tax structure to tax all passenger vehicles under 2 tax rates under GST.
  • For used vehicles, according to the present GST structure, tax ranging from 28% to 43% is levied on dealer margins, based on the vehicle type. In light of this, the automobile sector has put forth the proposal that for used vehicles, a fixed tax rate of 5% be levied on difference between the selling and purchasing price of the vehicle.
  • The automobile manufacturer’s society (SIAM) also put forth the suggestion that 10 to 13 seater ambulances be exempt from payment of compensation cess. At present, ambulances seating 10-13 people carry 28% GST, along with 15% cess.
  • Electric vehicles have been around for some years now, and are slowly gathering takers in India. To provide much-needed boost to this segment, the industry is hoping that the upcoming Union Budget would provide concessions on custom duties for additional critical components used in electric vehicles. Also, currently, GST of 12% is applicable on electric vehicles, which SIAM proposes be lowered down to 5%, along with full exemption of road tax. This is in addition to the single-time income tax deduction which non-financed buyers can avail for a value of up to 30% of the vehicle’s price.
  • Among other proposals, the industry has also urged that the new budget offer clear definitions for CKD (completely knocked down) and SKD (semi knocked down) units of electrical vehicles.
  • With regards to indirect taxes applicable in the automotive industry, many experts are of the view that it would be widely beneficial if custom duty could be made uniform at a rate of 10% for all auto components. This is in contrast to the current practice where varying rates are applicable on different components originating from different countries.
  • Regarding GST, according to the current structure, auto components are taxed at 2 rates, which are, 18% and 28%. Following a recent GST council meeting, some degree of relief has been provided on auto components. However, almost 40% of auto components are still taxed at 28% GST. In this regard, the industry has proposed that a flat GST rate of 18% be applicable on all product categories of auto components, which will certainly help provide that much-needed boost to local auto component manufacturers.

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