Budget 2025: Powering India's Auto Sector With Tax Relief & EV Push

Lower taxes, EV incentives, and infrastructure push—Budget 2025 paves the way for India's auto revolution

Union Budget 2025 is clearly a long-term growth-oriented budget backed by immediate boost to domestic consumption along with continued focus on Make in India, infrastructure development, skill development and localising technology. The government has been consistent in their policy making over the years. There is a Clean Tech Manufacturing push with a view to expand domestic production of key electric vehicle components such as batteries, motors, controllers, and electrolyzers is a positive move in the direction of net zero.

A big change in this budget is that people can now earn up to ₹12 lakh without paying income tax, with salaried workers benefiting up to ₹12.75 lakh. This change can provide a boost to spending and the automotive sector may get positively impacted, particularly in entry level two-wheelers and four-wheelers segment. This large part of the market had been growing slower than segments. 

In a move set to reduce costs for domestic manufacturers, the budget also restructures or lowers customs duties on a range of automotive related imports. Notably, the fully exempted list has expanded to include 35 capital goods including cobalt and scrap for Lithium-ion battery of EVs. This change can be pivotal for the battery manufacturing ecosystem as India, as it will aid manufacturers approved under ACC PLI and also provide locally sourced batteries to manufacturers approved under automotive PLI, for which one of the key requirements is to meet the domestic value addition criteria of 50 oer cent. While this is a welcome move, it would have been heartening to see similar duty calibrations to promote manufacturing of other alternative batteries, such as sodium-ion or multi-ion, as India will still remain largely import dependent. 

Further, the reduction in customs duty on completely knocked down (CKD) or semi-knocked down (SKD) kits of ICE motorcycles by 5 per cent will also spur manufacturing in India. The reduction on BCD in CBU ICE motorcycles, can attract global high-end bike brands, where the duty on motorcycles with Engine capacity of 1600 CC & above (CBU) will now attract 30 per cent BCD along with applicable surcharge, whereas motorcycles with engine capacity not exceeding 1600 CC (CBU) will be at 40 per cent plus applicable surcharge. BCD on EV motorcycles remains same. 

There are rejigs on social welfare surcharge being removed and AIDC being levied on several items, causing no impact in net effective rate for any import on 4 wheelers and luxury vehicles. Additionally, the effective BCD on car seats has also been reduced by 2.5 per cent.

Another notable highlight is the broader support for electric mobility through the zero-duty import of additional capital goods for EV battery manufacturing. This should bring down production costs for advanced battery packs, motors, and chargers, allowing Indian manufacturers to scale up faster. By championing local manufacturing and also easing certain import constraints, the budget sets a path for faster EV adoption and helps India transition to cleaner, lower-emission transportation solutions. 

Overall, a few expectations of the automotive sector are still open like GST simplification /rationalisation, expansion of PM E-drive, PLI 2.0, and we hope that these may get addressed in the near future. This budget has spur demand in the short term and continues to support new technology like EV and has also set some long-term changes in motion like supporting MSMEs, export promotion, support in education and technology to boost innovation and learning from an early age. This will set the stage for creating the right resources for the industry to flourish in future.


The above article has been written by Rajat Mahajan, Partner, and Automotive Sector Leader at Deloitte India.


 

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Rajat Mahajan

Guest Author Mr. Mahajan is the Partner and Automotive Sector Leader, at Deloitte India

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