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Union Budget and Automobile Industry in the last decade

Since 2004, there have been many changes in the Union Budget that affected the Indian automotive sector. Just before the Union Budget 2015, we collect all the highlights that affected the Indian automobile sector directly or indirectly in the last decade.

Union Budget and Automobile Industry in the last decade

2006-2007:

Government for the first time ever categorized small cars and tax slabs were made for the vehicles. Any vehicle under 4-metres and engine capacity below 1200cc for petrol and 1500cc in diesel engine was given more benefits. The new rule prompted manufacturers to put many new cars which met the new specifications and enjoyed the tax relaxation. Everything from sedans to SUVs were made under 4-metres to get the benefit.

2007-2008:

In the budget of 2007-2008, government focused more on in-house Research and Development by bringing down the 150 per cent tax related to the in-house research and development. The year also saw the reduction of tax for small cars from 16 per cent to 12 per cent and later in December, the small car tax was reduced to just 8 per cent.

2008-2009:

After small cars, government decided to make the bigger cars cheaper. In this year, the tax on the large cars was reduced to 20 per cent from 25 per cent.

2009-2010:

The budget in 2009-2010 didn’t bring any significant changes as compared to the previous years’ financial plan. The government cut the excise duty for petrol trucks to 8 per cent from 20 per cent. Additionally, the duty by value on cars and SUVs having cubic capacity equal and above 2,000cc was reduced by Rs 5,000 per unit to Rs 15,000. Apart from the that, the budget in 2008-2009 also provided a level playing field between road freight and other modes of transport by applying a uniform rate of service tax. Overall, budget brought about a marginally positive change for the sector. Although, there was nothing of much importance to the passenger car manufacturers.

2010-2011:

Compared to the budget in 2009-2010 fiscal, the budget for 2010-2011 had significant effect on the automobile sector. As per the budget for that year, 10 per cent tariff was imposed on small cars. Prior to that small cars benefited from 8 per cent excise tariff. Similarly, for big cars the excise duty will be charged at 22 per cent from the previously set 20 per cent. An excise of tariff of Re 1 on every litre of petrol were to be charged as well.

The hike in excise tariff on steel meant an inevitable rise in car prices as well. Electric cars, however, benefited since the excise duty on them was reduced to 4 per cent from 8 per cent.  Also, full exemption from custom tax on electric automobiles and on its components were also announced in the budget. In addition to this, a concessional tax on Solar power rickshaws was also announced.

2011-2012:

The budget for the year 2011-2014 didn’t see any major change with the standard excise duty remain at 10 per cent. This subsequently resulted in a strong growth for the sector. Additionally, the budget for 2011-2012 announced raising the minimum tax limit by Rs 20,000. Demand for 2 wheelers & lower end 4 wheelers had a positive impact as a result.

2012-2013:

The 2012-2013 budget affected the automobile sector considerably since excise duty across all segments was increased substantially. In the small cars segment, there was a 2 per cent increment in excise duty meaning it grew to 12 per cent. Similarly, for mid-sized vehicles it increased from 22 per cent to 24 per cent. For large cars, there was a 5 per cent increase in excise duty as it jumped to 27 per cent.

The custom duty on import vehicles was also increased to 75 per cent from 60 per cent in the 2012-2013 budget. A reduction in excise duty on replacement batteries rom 10 per cent to 6 per cent allowed hybrid vehicles’ costs to come down from 10% to 6%. This resulted in manufactures increasing the cost of their vehicles and had negative impact on the industry.

2013-2014:

The budget for the year 2013-2014 hit the auto sector hard, especially the automakers whose sales relied heavily on SUVs. The budget saw an increase in excise duty of SUVs by 3 per cent, meaning it grew from 27 per cent to 30 per cent. However, SUVs to be used as taxis were exempted from this increase in excise duty. The customs duty on completely built units took a massive plunge as it rose to 100 per cent from the previously set 75 per cent. The import duty on motorcycles above 800cc also went up from 60 per cent to 75 per cent. The excise duty for small cars and mid-size segment cars remained unchanged in this financial budget.

2014-2015:

The budget led by UPA government announced excise duty reduced to 24 per cent from 30 per cent for SUVs, 20 per cent for mid-sized car from 24 per cent, and 24 per cent for large cars from 27 per cent. However, in June 2014, when the BJP came into power, the excise duty concession was extended by six months to December 31, 2014. Post which, the excise duties on the aforementioned vehicle segments were increased to the previous rates.

Source : CarDekho