Budget 2025 Expectations For Automobile Sector: Reduction In GST For Hybrids, Removing Domestic Production Bottlenecks, More

Complex GST classifications for auto components remain a significant hurdle for manufacturers. A streamlined nomenclature could ease compliance.

With proactive reforms in Budget 2025, the automobile sector can accelerate its transition to sustainability.

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Budget 2025: India's automobile industry, the world’s third-largest market, is at a turning point, driven by shifting consumer preferences, sustainability goals, and evolving government policies. As Budget 2025 approaches, stakeholders in the sector have high expectations for reforms to address long-standing challenges and fuel sustainable growth.

As per Rajeev Singh, Partner and Consumer Industry Leader, Deloitte, certain measures such as simplification of GST classes and boosting domestic manufacturing are some of the most urgent expectations that players in the automobile sector have from the upcoming Union Budget.

Let's take a closer look:

Accelerating Shift To Electric & Hybrid Vehicles

The adoption of Electric Vehicles (EVs) is accelerating, thanks to government subsidies and a reduced GST rate of 5 per cent. However, hybrid vehicles, seen as an intermediate step toward full electrification, are taxed at a steep 28 per cent, making them less appealing to consumers.

Industry leaders are urging a reduction in GST for hybrids to make them more affordable, especially in areas where EV infrastructure, such as charging points, remains underdeveloped. Such a measure could ease the transition to greener alternatives while reducing reliance on fossil fuels.

Simplifying Taxation & Enhancing Refund Procedures

Complex GST classifications for auto components remain a significant hurdle for manufacturers. A streamlined nomenclature could ease compliance, reduce litigation, and promote efficiency in the sector. EV manufacturers also face challenges due to an inverted duty structure, where inputs attract higher GST rates than the finished product.

Streamlined refund procedures and allowing Input Tax Credit (ITC) on capital goods could improve cash flow and reduce production costs, especially for capital-intensive EV startups.

Strengthening Domestic Manufacturing

While the Production Linked Incentive (PLI) scheme has successfully attracted investments, stringent domestic value addition norms and delayed disbursements are bottlenecks.

Relaxing these criteria and ensuring timely payouts could encourage more participation, enabling manufacturers to scale up production and invest in new technologies.

Expanding EV Manufacturing Incentives

The existing scheme offering reduced customs duty on imported EVs priced above $35,000 is seen as restrictive. Broadening its scope to include lower-priced vehicles could attract more global manufacturers, fostering competition and providing consumers with affordable EV options.

With proactive reforms in Budget 2025, the automobile sector can accelerate its transition to sustainability and position India as a global leader in automotive innovation.