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Budget 2021: Expectations of Indian Auto Industry - Tax Reduction to Vehicle Scrappage Policy

File photo: Finance Minister Nirmala Sitharaman holds budget papers during a photo opportunity as she leaves her office to present the federal budget in the parliament in New Delhi, India, February 1, 2020. REUTERS/Anushree Fadnavis

File photo: Finance Minister Nirmala Sitharaman holds budget papers during a photo opportunity as she leaves her office to present the federal budget in the parliament in New Delhi, India, February 1, 2020. REUTERS/Anushree Fadnavis

Here are some key recommendations from Federation of Automobile Dealers Associations (FADA), apex national body of Automobile Retail Industry in India.

As Finance Ministry prepares the annual budget scheduled to be presented in February 2021, Indian auto indusrty is hoping for some key announcements to induce confidence in the market again, suffering from dull sales due to COVID-19 pandemic. Here are some key recommendations from Federation of Automobile Dealers Associations (FADA), apex national body of Automobile Retail Industry in India-

Introduce benefits of claiming depreciation on vehicles for Individuals paying Income Tax and extend depreciation period for corporates

This will boost vehicle demand during these extraordinary times and also increase the number of individuals filing IT returns and promote growth in GST collection for the government. The increase in depreciation rate for all types of vehicles which was valid till 31st March ’20 should also be extended for FY 2021 and it will fuel demand further.

Reduction of Corporate Tax for Proprietary & Partnership Firms

The government reduced corporate tax to 25% for private limited companies with a turnover of up to Rs 400 crores last year. This benefit should also be extended to all Proprietary and Partnership firms since most traders in the auto dealership community are in this category. This will boost morale and sentiment of traders, who together employ 5 million people, 2.5 million of whom are on direct employment. The auto trading community is an employment generating mechanism as we do not displace employees and give them employment in their home locations!

Auto Dealers should be kept out of annual TCS of .1%

The Finance Bill 2020 introduced TCS of .1% to be charged annually w.e.f October 1, 2020. This is a huge financial burden on the automobile retail industry, tying up working capital until dealers receive refunds. It will affect demand since vehicle acquisition cost will go up and hence Auto Dealers should be kept out.

An attractive incentive for successful implementation of Vehicle Scrappage Policy across the country

The government must design a robust Inspection & Certification (I & C) policy or End of Life Vehicles (ELV) policy for vehicles in the country. However, as both the above policies would take time to be effectively implemented, there is a need for an immediate scheme based on incentive for encouraging voluntary scrapping of old vehicles and replacing them with newer ones. The new vehicles are cleaner and meet stringent emission requirements.

FADA recommends the policy implementation should be focused on incentives rather than strict mandates

It is more feasible to encourage people than to force them to replace their old vehicles with new ones. We have already witnessed a similar success in the voluntary surrender of Gas Subsidies by consumers. All vehicles registered in India until 31st March 2000 should qualify under the Modern Fleet Vehicle Replacement Scheme. Similar schemes have been successfully implemented in the US, Canada, the UK and Italy by providing fiscal incentives and concessions for replacement through a single-window fleet modernization program.

Therefore, in India, this scheme will have benefits of reducing pollution, reducing fuel consumption and improving safety. We hence request for an attractive incentive to be planned for the success of the Voluntary Scrappage Policy.

“Honorable Finance Minister Smt. Nirmala Sitharaman has already expressed her intention to revive growth and boost investor confidence. The upcoming 2021 Union Budget should be focused on measures to revive the Indian economy from the pandemic slowdown and boost consumption led demand. The Indian automobile industry is a barometer of the Indian economy and its revival will in turn pull up the economy. The auto retail industry is one of the key pillars of India’s growth trajectory, contributing ~4.5 million jobs. We look forward to a demand led growth oriented budget,” Vinkesh Gulati, President Federation of Automobile Dealers Associations (FADA).

first published:January 23, 2021, 21:05 IST
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