GST: FM provides an electric push to automobile sector
India is the world’s 4th largest manufacturer of cars and 7th largest manufacturer of commercial vehicles. The automotive sector is, therefore, a focus sector and the Budget proposals promote electric vehicles (EVs) and also boost infrastructure investment. As such, Budget 2019 has a number of positive initiatives for the auto industry.
One of the points of government’s vision for the next decade is ‘Make in India’ with particular emphasis on the automobile sector. Building sustainable and resilient infrastructure has been given due importance by the government. The government has announced its intention to invest Rs 100 lakh crore in infrastructure over the next five years. Further, under Bharatmala 2, the government will focus on helping States to develop State road network. These measures include upgradation of 125,000 km of the rural road. With a view to making India a global hub of manufacturing of EVs, a “National Electric Mobility Mission Plan 2020 (NEMMP)” has been conceived with an objective to achieve sales of 60-70 lakh units of total EVs by 2020. The Union Cabinet has approved the implementation of scheme titled Faster Adoption and Manufacturing of EVs in India Phase II (FAME India Phase II) & for promotion of electric mobility in the country with a total outlay of Rs 10,000 crore. Further, the Economic Survey highlights the importance of having good charging infrastructure as key to mass adoption of EVs and it goes on to predict that one of the cities in India will become the Detroit of EVs.
Direct tax proposals
Coming to direct taxes, the finance minister has extended the benefit of a reduced corporate tax rate of 25% to companies with total turnover up to Rs 400 crore in the financial year 2017-18.
Further, in line with the policy to encourage the purchase of EVs, the FM has proposed Rs 1.5 lakh additional income tax deduction per year for individual taxpayers on interest paid on a loan taken for the purchase of EV covering loans sanctioned between 1 April 2019 to 31 March 2023.
The FM also mentioned in her speech that a scheme will be launched to invite global companies to set up mega manufacturing plants in Sunrise & Advanced Technology Areas including lithium storage batteries and solar electric charging infrastructure and such manufacturing units will be eligible for investment linked income tax exemption under section 35AD and other indirect tax benefits. A number of initiatives have been proposed to promote electronic payments and to facilitate ease of doing business (eg faceless assessments).
Indirect tax proposals
The Budget proposals on indirect taxes side provide for customs duty exemption on certain EV parts. In order to encourage and indirectly incentivise domestic industry, basic customs duty (BCD) has been proposed to be increased on certain automobile parts. Further, BCD has been proposed to be increased for certain Completely Built Unit (CBU) vehicles from 25% to 30%. As regards GST, fully automated GST refund module shall be implemented which should reduce the blockage of working capital and reduce the interest burden. An electronic invoice system is proposed that will eventually eliminate the need for a separate e-way bill – these will significantly reduce the compliance burden. Besides, GST Council has already moved to lower the GST rate on EVs from 12% to 5%. FM has proposed to increase the rate of both road and infrastructure cess and special additional duty of excise each by Re 1 per litre resulting in an aggregate increase of Rs 2 per litre.
The Dispute Resolution Scheme has been proposed for resolution and settlement of legacy cases of Central Excise and Service Tax. In terms of misses, the industry was expecting a GST rate reduction announcement across all categories of vehicles as also a comprehensive policy on scrapping of old vehicles. While these measures are missing, the benefits given to electric vehicles shows the seriousness of the government to advance to a greener India and combined with the measures to boost road infrastructure and address NBFC liquidity issues, this is a balanced budget by NDA 2.0 for the automotive sector.
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