Auto sector seeks GST revision, inclusive schemes for EVs, bold incentives from Union Budget 2025

Considered the world’s third-largest automobile market, the Indian auto market is valued at more than USD 116.86 billion, with a strong position in the heavy vehicle category. The market is soon to hit the milestone, with projections indicating that it will reach USD 300 billion by 2026. This growth is fueled by various factors including rising income levels, urbanisation, and a burgeoning middle class with increasing purchasing power.

The industry experts, however, warn that focused efforts must be made to establish a conducive environment for the automotive sector in order to draw in additional global investments in supporting domestic production and guarantee the sector's continued growth.

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For instance, the industry has been grappling with the issues around complex classifications for a long time now. In the upcoming Union Budget, the government can also consider removing the compensation cess on the sale of vehicles, suggested Rajat Mahajan, Partner, Deloitte.

Simplified GST Rate Structure

Mahajan highlighted the government should focus on simplified classification and GST rate structure for automobiles and auto components for automobiles and auto components.

Different auto components, such as engines, chassis, and batteries, fall under different chapters, resulting in increased complexities and incorrect classification, especially by companies dealing with auto components.

A simplified nomenclature, he said, will facilitate ease of doing business. It would aid in eliminating confusion and improve compliance, thereby reducing unnecessary litigation around classification.

Reduction of GST on Hybrid Vehicles

Hybrid vehicles can be considered as one of the closest alternatives to electric vehicles (EVs). Promoting the use of hybrid vehicles will help reduce carbon emissions and reduce import dependency on crude oil.

"Reduction in GST rates on hybrid vehicles will make them more affordable and practical for Indian consumers to adopt. Hybrid vehicles can be an intermediate step for consumers who are not entirely ready to transition towards EVs," remarked Mahajan. This will encourage automakers to focus on hybrid technologies, which can be an effective bridge to EVs, especially in regions where the EV charging infrastructure is still underdeveloped.

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Inclusive Schemes For EVs

To accelerate the growth of the EV sector in India, there is a need to revisit the restrictive eligibility criteria of the Production-Linked Incentive (PLI) scheme, particularly for smaller companies and startups, say experts.

According to Mohal Lalbhai, CEO and founder, Matter Motor, a more inclusive PLI 2.0 would foster broader participation and innovation in the EV industry.

Furthermore, reducing the GST on lithium batteries from 18% to 5% would address inverted duty structure challenges faced by startups and OEMs, ultimately lowering costs and promoting growth.

"The government might also explore implementing measures to disincentivise the ICE vehicles, such as congestion charges or higher taxes on these vehicles. These steps are especially relevant given the rising pollution levels in cities and the phased discontinuation of EV subsidies," he shared.

Encouraging the shift toward electric mobility through such measures will be essential in ensuring sustainable urban development and realising the vision of ‘Make in India, Make for the World,’ while ensuring that EVs remain accessible to all.

Focus should be on employment generation, skill development, and fostering the growth of the EV segment in the auto industry, as well as enhancing workforce participation through initiatives, according to Subburathinam P, Chief Operating Officer, TeamLease Services.

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Additionally, providing incentives for local manufacturing of EV components, such as batteries and powertrains, will help reduce import dependency and create more employment opportunities.

The industry is expecting slab reduction in GST on batteries, this will further give relaxation to EV manufacturers.

Nilesh Bajaj, Co-founder & CEO, Vayve Mobility, expects a simplified refund process for input tax credits (ITC), including capital goods from the upcoming budget. The move would provide much-needed working capital support for startups.

Investment in Urban Charging Infrastructure

As electric/battery-operated vehicles are designed for urban commuters, the availability of fast, accessible charging stations in city centers and surrounding suburbs is crucial.

"Increased budget allocation for public-private partnerships in this space would foster consumer confidence in adopting EVs for city travel," highlighted Bajaj.

Clarity on Consumer Incentives

While government incentives for EV buyers have accelerated adoption, there is growing uncertainty about how long these benefits will last and whether they will be phased out in stages.

Bajaj remarked that a clear roadmap outlining the future of these incentives would help consumers plan their purchases confidently and allow OEMs to align their production strategies with policy timelines.

While initiatives like the PM E-Drive scheme have been instrumental in making EVs not just accessible but also a viable alternative to ICE vehicles; however, the introduction of the much-awaited FAME III scheme could unlock even greater potential for the sector, said Suhas Rajkumar, CEO and Founder, Simple Energy.