The elimination of restrictions to avail the enter tax credit score of GST paid on vehicles for companies would make automobiles extra reasonably priced when used for enterprise functions, in addition to fulfilling the fundamental intention of GST to get rid of cascading of taxes.
A rear-view reflection of Indian automotive sector exhibits the battle and profound recession throughout the automotive industry for the previous few years even earlier than the pandemic outbreak. As the yr 2021 unfolds, the Indian auto industry is optimistic to get well from the throes of the additional downturn brought on by COVID-19 pandemic.
In addition to the convalescing actions that the automotive industry might be required to take in order to recuperate itself, there’s additionally a necessity for governmental reforms to help the identical.
The authorities has already proven deal with initiatives which can be probably to enhance the feelings in the auto sector. The rollout of schemes like ‘Production Linked Incentive’ (PLI); ‘Manufacture and Other Operations in Warehouse Regulations’ (MOOWR) and ‘Remission of Duties and Taxes on Exported Products’ (RoDTEP) has already set the ball rolling in the specified path.
Under the PLI scheme alone, the federal government has proposed an outlay of roughly Rs 57,042 crores for the automotive sector and an extra Rs 18,100 crores for Advanced Chemistry Cells (used in EV batteries). The scheme is designed to incentivise incremental manufacturing for eligible entities, promote exports and substitute imports.
The PLI scheme for the automotive sector, which contributes 40 % of India’s manufacturing GDP, will carry manufacturing to the centre stage and emphasise its significance in driving India’s progress and creating jobs in the nation at a big scale.
With just some days left for 2021 Union Budget on 1 February, all the nation can have its ears and eyes on the Budget speech of the finance minister. Finance Minister Nirmala Sitharaman has promised a ‘never before’ like Union Budget as the federal government seems to be to steer the pandemic-battered economic system and push progress. In such a state of affairs, the auto industry expects reduction from the Union Budget 2021-22 in a number of areas together with direct and oblique taxation, in addition to varied coverage-stage initiatives.
On the coverage-stage initiatives, the industry expects the PLI scheme to be centered on import substitution and issue the gestation interval concerned in setting-up the worth chain in India.
While Goods and Services Tax (GST) rates are proposed and decided by the GST Council, nonetheless, the speed discount is pivotal for accelerating the expansion of the automotive sector. In the non-public automobile area, the sector has these days proven growing choice for private mobility, because of social distancing norms. To additional increase the identical, authorities and the GST Council may make two-wheelers and entry-stage automobiles cheaper by briefly decreasing the GST charge to 18 % from the current 28 % and decreasing the compensation cess rates.
Further, the elimination of restrictions to avail the enter tax credit score of GST paid on vehicles for companies would make automobiles extra reasonably priced when used for enterprise functions, in addition to fulfilling the fundamental intention of GST to get rid of cascading of taxes. On related traces, the escalated depreciation charge of automobiles below Income Tax would assist to enhance the demand.
Other incentives like discount in highway taxes/registration fees will scale back the fee burden on client automobiles. With automobile loans being provided at very low curiosity rates by banks and different monetary establishments, the finance minister in her Budget could contemplate increasing the provision of tax deduction of curiosity on the mortgage for EVs to different automobiles as properly.
There can be a grapevine of the introduction of COVID cess/ surcharge on excessive-revenue earners, which might ultimately scale back the non-public disposable revenue in the arms of customers, which can adversely influence the automotive sector.
The industry has been awaiting the a lot-talked-about scrappage scheme. An acceptable scrappage coverage can enhance the demand to a different stage, in addition to assembly the emission norms.
Given the unprecedented occasions, the necessity to steadiness these necessities is way more than ever in this Budget and it will not be an exaggeration to say that that is the now or by no means alternative to introduce measures to propel financial progress and drive the federal government’s agenda to carry the economic system again onto a progress trajectory.
The author is Tax Partner, EY. Nikit Popli, senior tax skilled with EY additionally contributed to this text.
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