Double Boost: Government Doubles Tax Benefit for Automakers, Defers Revision in Registration Fee

In a bid to boost the ailing Indian automotive industry, Finance Minister Nirmala Sitharaman has announced several measures today. One of which is the reduction of taxes that are applicable on automakers as the depreciation amount that is considered before taxing, has been doubled to 30 per cent. This was earlier 15 per cent.

To put it in simpler words, consider a car that is being sold at Rs 100 by an automaker. The government previously would consider a 15 per cent depreciation and tax them for Rs 85. Now, as it has been doubled, the same would be taxed at Rs 70.

This is applicable on vehicles across all segments that are sold from now till March 2020.

This in turn creates an opportunity for automakers to either absorb this to outset losses or perhaps even pass on the gains to the end consumer in order to attract new buyers and get the cash counters ringing once again.

Nirmala Sitharaman also announced that the revision in the one-time registration fee levied on new vehicles has been postponed to June 2020. Last month, a draft notification by the ministry of road transport and highways proposed a hike in the registration charges for new Internal Combustion Engine (ICE) cars from Rs 600 to Rs 5,000, with the renewal of registration of the same being proposed at Rs 15,000.

Currently, the Indian automotive sector has been going through one of its worst slowdowns in history manufacturers across segments, including cars, motorcycles and scooters, reporting a steep decline in sales when compared to Year-on-Year sales. As a result, the entire Passenger Vehicle and Commercial Vehicle industry have seen a decline in sales with inventory piling up with dealers across the country. To give you a perspective, as per the numbers, the slowdown has been the worst in the last 19 years which has resulted in over 15,000 job losses in the past three months alone. There have also been reports that automakers, parts manufacturers and dealers have laid off over 3.5 lakh workers since April 2019.

As per the data that was recently released by the Society of Indian Automobile Manufacturers (SIAM), vehicle sales across categories, including passenger vehicles (PVs) and two-wheelers, stood at 18,25,148 units last month as against 22,45,223 units in July 2018. The previous biggest decline across overall domestic automobile sales was recorded in December 2000 when it fell 21.81 per cent.