Union Budget: Auto Industry Expects Govt To Lower Taxes & Simplify GST Structure Simplified classification and GST rate structure for automobiles and auto components, reduction of GST on hybrid vehicles, simplified refund procedure for electric vehicles manufacturers would be required to boost growth

The upcoming Union Budget presents an opportunity to address some pressing needs of the automotive sector. There is a significant shift in the growing preference for electric vehicles (EVs) over traditional internal combustion engine (ICE) vehicles, as consumers increasingly seek sustainable and cost-effective modes of transportation. Lower GST on the sale of EVs (5 percent) compared with traditional ICE vehicles, which are currently taxed at the high tax bracket is one of the growth factors towards this shift. To further boost the penetration, simplified classification and GST rate structure for automobiles and auto components, reduction of GST on hybrid vehicles, simplified refund procedure for EV manufacturers would be required.

"A simplified nomenclature will facilitate ease of doing business. It would aid in eliminating confusion and improve compliance, thereby reducing unnecessary litigation around classification. Hybrid vehicles can be considered as one of the closest alternatives to EVs. Promoting the use of hybrid vehicles will help reduce carbon emissions and reduce import dependency on crude oil. Reduction in GST rates on hybrid vehicles will make them more affordable and practical for Indian consumers to adopt," said Rajeev Singh, partner and consumer industry leader, Deloitte.

"Simplified refund procedure for EV manufacturers will enhance cash flow due to reduced blocking of working capital," added Singh.

Although India is the world's third-largest automobile market, there are early signs of auto industry growth slowing down. Therefore, budgetary initiatives to boost disposable income of consumers is necessary to support robust growth. A long-term vision for favorable tax structure catering to different automotive technologies would certainly benefit the industry.

"The product development cycles are quite lengthy and require substantial investment which needs to be considered. Simplifying the GST structure for the different classes of vehicles & components is another ask. Budget allocation on facilitating the EV ecosystem like charging infrastructure will give further lift to sustainable mobility. I am optimistic that this Budget will introduce practical and forward-looking measures to strengthen the automotive sector and support its role in India's economic growth and environmental ambitions," said Piyush Arora, MD & CEO, Skoda Auto Volkswagen India.

Hybrid vehicles in India are currently burdened with the highest rate of tax (28 percent), making them less attractive than fully electric or conventional petrol/diesel vehicles. Considering that hybrid vehicles are a practical alternative to reduce emissions and promote electrification, every effort should be made to promote such technologies and encourage the transition from Internal Combustion Engine (ICE) vehicles to greener alternatives. This becomes especially important for countries such as India, where relative EV infrastructure, such as charging points and battery manufacturing units, is still nascent or developing.

"I think there's a raging debate going on in the automotive sector regarding lowering of the tax rate for hybrid vehicles. So, we have made a representation to the government on plugin hybrids, the tax rate should be brought down from a current 43 per cent to a lower level, not as low as 5 per cent, but somewhere between five and 43 to incentivize plugin hybrids. Plugin hybrids are a very good transition technology," said Parth Jindal, director, JSW MG Motor.

Considering the government's intent to rigorously promote electrification and localised manufacturing of EVs, all necessary steps should be taken to create a conducive environment for EV manufacturing in the country.