Union Budget 2021: Auto industry optimistic about recovery from pandemic; expects cut in GST rates

Hyundai automotive manufacturing unit. Picture courtesy Wikimedia Commons

A rear-view reflection of Indian automotive sector reveals the battle and profound recession inside the automotive trade for the previous few years even earlier than the pandemic outbreak. Because the yr 2021 unfolds, the Indian auto trade is optimistic to recuperate from the throes of the additional downturn attributable to COVID-19 pandemic.

Along with the convalescing actions that the automotive trade will probably be required to take with the intention to recuperate itself, there’s additionally a necessity for governmental reforms to assist the identical.

The federal government has already proven give attention to initiatives which might be possible to enhance the emotions within the auto sector. The rollout of schemes like ‘Manufacturing Linked Incentive’ (PLI); ‘Manufacture and Different Operations in Warehouse Rules’ (MOOWR) and ‘Remission of Duties and Taxes on Exported Merchandise’ (RoDTEP) has already set the ball rolling within the desired route.

Underneath 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 Superior Chemistry Cells (utilized 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 within the nation at a big scale.

With only a few days left for 2021 Union Finances on 1 February, the complete nation could have its ears and eyes on the Finances speech of the finance minister. Finance Minister Nirmala Sitharaman has promised a ‘by no means earlier than’ like Union Finances as the federal government appears to be like to steer the pandemic-battered financial system and push progress. In such a situation, the auto trade expects reduction from the Union Finances 2021-22 in a number of areas together with direct and oblique taxation, along with varied policy-level initiatives.

On the policy-level initiatives, the trade expects the PLI scheme to be centered on import substitution and issue the gestation interval concerned in setting-up the worth chain in India.

Whereas Items and Providers Tax (GST) charges are proposed and decided by the GST Council, nonetheless, the speed discount is pivotal for accelerating the expansion of the automotive sector. Within the private automobile house, the sector has these days proven rising choice for private mobility, due to social distancing norms. To additional increase the identical, authorities and the GST Council may make two-wheelers and entry-level automobiles cheaper by briefly lowering the GST charge to 18 % from the current 28 % and reducing the compensation cess charges.

Additional, the elimination of restrictions to avail the enter tax credit score of GST paid on cars for companies would make autos extra reasonably priced when used for enterprise functions, moreover fulfilling the essential intention of GST to remove cascading of taxes. On related strains, the escalated depreciation charge of autos below Earnings Tax would assist to enhance the demand.

Different incentives like discount in street taxes/registration expenses will cut back the fee burden on shopper autos. With automotive loans being supplied at very low rates of interest by banks and different monetary establishments, the finance minister in her Finances could take into account increasing the provision of tax deduction of curiosity on the mortgage for EVs to different autos as properly.

There’s additionally a grapevine of the introduction of COVID cess/ surcharge on high-income earners, which might finally cut back the non-public disposable earnings within the arms of customers, which can adversely influence the automotive sector.

The trade has been awaiting the much-talked-about scrappage scheme. An appropriate scrappage coverage can enhance the demand to a different stage, along with assembly the emission norms.

Given the unprecedented occasions, the necessity to steadiness these necessities is rather more than ever on this Finances 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 financial system again onto a progress trajectory.

The author is Tax Companion, EY. Nikit Popli, senior tax skilled with EY additionally contributed to this text.