Published Editorial

Interim Budget Interim Relief for the Auto Industry

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ET Online


Amit Bhagat
Executive Director - Tax & Regulatory Services, EY

Contributed by:

Prashanth Agarwal
Senior Tax Professional, EY

The Interim Budget was tabled before the Parliament today. While no major announcement was expected, substantial reduction in the Excise duty across segments in the Auto sector has come as a pleasant surprise for the industry. 

The relief has been announced at a time when the industry, as the Finance Minister himself stated, is going through unprecedented negative growth. It is apparent that the continuous representation and plea of the auto industry has been heeded to by the Government.

This measure is certainly going to go a long way in restoring some confidence in the sector and should also have a trickledown effect on the ancillary industries particularly the component manufacturing.

It would be prudent to expect that the benefit of the duty reduction would be passed on to the customer thereby resulting in reduced car prices and increase in consumer demand. 

With the change in rates, the biggest relief has come to the SUV manufacturers with more than 6% reduction in the effective Excise duty rate.

The Ministry has clarified that the above change in rates would be effective from today. However, this measure as of now is an interim relief effective till 30 June 2014. The Finance Minister indicated that the changes would be reviewed at the time of the General Budget to be announced later this year post appointment of the new Union Government. 

The rate reduction is similar to the relief measures announced in light of the economic recession in 2010. It would be important that the new Government also ensures that the reduced rates are continued for some time considering the current plight of the industry to help it get its footing back.

Additionally, in order to encourage environment friendly cars, benefit of lower Excise duty has been continued on manufacture of battery chargers, battery pack, AC/CD motor and AC/CD motor controllers etc. used in manufacture of Hybrid and Electrically operated cars, till 31 March 2015.

The impact of the reduction in the Excise duty rate would also be on the import of cars, motor cycles etc. wherein the additional duty of customs levied in lieu of Excise would reduce thereby resulting in overall reduction in the Customs duty rates.

Although this announcement is being greeted with loud cheers by the auto industry, it is to be seen in coming days as to how it translates into resurgence in car sales in coming days.

Views expressed are personal