Presenting the Union Budget 2025, the Finance Minister highlighted a strategic push for the EV industry, focusing on enhancing both supply and demand. The Government's commitment to indigenous manufacturing is clear from substantial allocation of funds to various schemes like PM-E Drive, Auto PLI and ACC PLI. Personal income tax relaxations aim to boost private consumption, complementing these supply-side measures.
Customs reforms include exempting Basic Customs Duty (BCD) on lithium-ion battery scrap and critical minerals like lead, copper, etc ensuring a steady supply for local production and job creation. To further support the EV sector, BCD exemptions have been granted to additional capital goods to bolster lithium-ion battery production.
Additionally, the government proposed a reduction in BCD on motorcycles (including CKD and SKD), CKD and SKD of specified large passenger vehicles and motor vehicles for transportation of goods, to provide quality product at affordable price to the Indian consumer. Amidst global competition, particularly from neighbouring countries, these initiatives are poised to enhance India's self-sufficiency in the automotive sector which is in line with the 'Atmanirbhar Bharat' vision of the Hon'ble Prime Minister.
How does the budget impact Automotive sector?
- Proposal has been made to lower individual income tax rates which is likely to boost the purchasing power of the middle class, thereby expanding their capacity for non-essential expenditures. The Government has proposed an expenditure of INR 7,000 Cr+ in various centrally sponsored schemes such as PM E-Drive (INR 4,500 Cr.), Auto PLI (INR 2,818 Cr.), ACC PLI (INR 155 Cr.) and SMEC (INR 12 Cr.).
- The Budget has updated the parameters for identifying Micro, Small, and Medium Enterprises (MSMEs) by raising the thresholds for investment and turnover. This adjustment allows a wider spectrum of automotive component producers to be recognized as MSMEs.
- The government has strategically proposed a presumptive taxation system for non-residents who establish or manage electronics manufacturing plants, coupled with a safe harbour rule that provides tax predictability for non-residents who stockpile parts for specified electronics producers. Through fostering a more advantageous tax landscape, the aim is to encourage the transfer of cutting-edge technology and know-how into the auto electronics manufacturing sector.
- To promote indigenous manufacturing, custom duty rate rationalisation has been proposed for automotive sector.
- Proposed simplification of the tax deduction at source ('TDS') provisions and increasing the thresholds of certain TDS rates will help in reducing compliance burden of the taxpayers.
Key amendments in Direct Tax
- Presumptive taxation regime proposed to be introduced for non-residents providing technology and support services to electronics manufacturing facilities in India will significantly reduce the tax burden, encouraging global players to invest in the Indian automotive sector's electronic components and systems.
- In case of amalgamation or specified reorganisation, fresh carry forward life of 8 years currently available to successor entity for the business losses of predecessor entity is now proposed to be restricted to 8 years from the initial year in which predecessor entity had computed such losses Simplification and rationalization of TDS provisions.
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- Following key thresholds for applicability of TDS rates are proposed to be increased:
- The higher TDS/TCS rate for non-filers of income tax returns is proposed to be not applicable. This amendment will be effective from 1 April 2025.
- The provision related to tax collection at source on the sale of goods is proposed to be not applicable. This amendment will be effective from 1 April 2025. This will reduce the burden on the seller to ensure whether the buyer is deducting tax at source.
- The reclassification of MSMEs with higher investment and turnover thresholds will provide greater access to financial incentives and support for automotive component manufacturers, fostering growth and innovation in the sector.
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