The Union Budget 2025-26 introduces several measures aimed at stimulating growth in India’s automotive sector:
The Union Budget 2025-26 aims to bolster the automotive sector through tax relief, support for EVs, incentives for local manufacturing, and assistance to MSMEs, creating a conducive environment for growth and innovation.
The Indian Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, has introduced a series of measures that could significantly impact India’s automotive sector. From tax reforms to incentives for EVs and support for manufacturing, the budget has a range of good news for the industry:
How Does The Budget 2025 Affect The Automotive Sector?
The most newsworthy and important announcement is the increase in the income tax exemption limit to Rs 12 lakh (Rs 12.75 lakh for salaried individuals including the standard deduction). For consumers, this opens access to more disposable income, which has the potential to translate into increased spending on two-wheelers, three-wheelers, passenger cars and all other vehicles.
Tax Reforms and Consumer Spending:
The government has increased the income tax rebate, making incomes up to ₹12 lakh non-taxable. This change is expected to boost disposable income, potentially leading to higher consumer spending on vehicles.
Support for Electric Vehicles (EVs):
The budget allocates ₹4,500 crore to the PM E-Drive scheme, focusing on the development and adoption of electric vehicles. Additionally, customs duties on 35 key components for EV batteries, including lithium-ion battery scraps and critical minerals like copper and lead, have been removed. This initiative aims to reduce production costs and promote the adoption of EVs.
Production-Linked Incentive (PLI) Scheme:
An allocation of ₹2,819 crore has been made for the PLI scheme targeting the automobile and auto components sector. This funding is intended to encourage local manufacturing, enhance competitiveness, and attract investment in advanced technologies.
Support for Micro, Small, and Medium Enterprises (MSMEs):
The budget revises the criteria for MSMEs, increasing investment and turnover limits. This change is expected to provide better access to financial and policy support for automotive component manufacturers, fostering growth and innovation within the sector.
Customs Duty Revisions:
The budget reduces import duties on luxury cars from 125% to 70% and on motorcycles with engine capacities over 1,600cc from 50% to 40%. These reductions are anticipated to make high-end vehicles more affordable and stimulate demand.
The Union Budget for 2025-26 introduces several measures that are poised to significantly impact India’s automotive sector, with a strong emphasis on electric vehicles (EVs), manufacturing, and consumer spending.
Key Highlights:
- Tax Reforms and Consumer Spending:
- The government has increased the income tax exemption limit to ₹12 lakh, aiming to boost disposable income and stimulate consumer spending across various sectors, including automobiles.
- Support for Electric Vehicles (EVs):
- Customs Duty Exemptions: Customs duties have been waived on 35 capital goods essential for EV battery production, reducing manufacturing costs and making EVs more affordable.
- Production-Linked Incentive (PLI) Scheme: An allocation of ₹2,819 crore has been designated for the PLI scheme to promote local manufacturing of EVs and their components.
- Infrastructure Development:
- A substantial capital expenditure of ₹11 lakh crore has been allocated for infrastructure development, including roads and highways, which is expected to benefit the commercial vehicle and logistics sectors.
- Support for Micro, Small, and Medium Enterprises (MSMEs):
- The budget includes provisions for MSMEs in the automotive sector, offering working capital support, funds for technological upgrades, and easier access to credit.
- Export Promotion:
- Initiatives like Bharat Trade Net and the Export Promotion Mission aim to integrate Indian auto manufacturers into global supply chains, enhancing export opportunities.
Industry Reactions:
Industry bodies such as the Automotive Component Manufacturers Association (ACMA) and the Federation of Automobile Dealers Associations (FADA) have welcomed the budget, highlighting its potential to boost vehicle demand across segments through increased consumer spending power and manufacturing support.
In summary, the Union Budget 2025-26 presents a comprehensive approach to invigorate India’s automotive sector by enhancing consumer spending, supporting EV adoption, fostering manufacturing growth, and promoting exports.
