An Overview Key Key policy Direct Tax Indirect Tax Our Offices

Expectations initiatives Proposals Proposals

Union Budget 2011-12:

Impact on Auto Sector

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An Overview Key Key policy Direct Tax Indirect Tax Our Offices
Expectations initiatives Proposals Proposals

An overview
There has been a steady growth in the Indian automobile The sector expects this year's growth to be limited to 15% with
sector in the last one year. Based on the statistics the increase in interest rates, fuel costs and other input costs.
published by the Society of Indian Automobile The buzz of possible hike in excise duty by the government
Manufacturers (SIAM), during the period of April- had been adding to automakers' woes, but the fact that there
Decemberb 2010 the h automobile
b ddomestic sales exceeded
d d h b
has been no change
h h
has b
been a welcome measure. On the h
a staggering 14.8 million units, registering a growth of positive side, some reliefs on indirect tax and policy front were
over 30%. The export sales also showed a significant also expected.
growth of more than 30%.
Having
H i saidid this,
thi ddue credit
dit should
h ld b be given
i tto th
the
Given that the success of the auto components industry
Government's efforts in encouraging units in the auto sector in
goes hand in hand with the automobile industry, there
the past few years which has sustained the momentum and
have been several expectations from the Finance
growth levels in this sector. This is evident from the continuing
Minister. The auto industry looked forward to seeing
growth that this sector has been showing and the fact that India
steps announced for the development /modernization of
is emerging as a pioneer in the research and manufacture of
infrastructure for industries engaged in the manufacture
small cars in spite of increasing fuel costs and hike in car prices.
of auto components.

With the Government and the public at large becoming

i
increasingly
i l conscious
i off the
h ill effects
ff off Global
Gl b l
warming and the imminent impact on health of citizens
on account of pollution, introduction of Green
Technology is an initiative waiting in the wings to take
off.

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An Overview Key Key policy Direct Tax Indirect Tax Our Offices
Expectations initiatives Proposals Proposals

Key expectations
Industry aspirations Indirect Tax Measures
• Stimulus package expected to continue • Removal of the special additional duty and reduction of
• Steps for development /modernization of duties on import of items like aluminum and steel which
infrastructure for Small & Medium Enterprises constitute a major part in components manufacturing
involved in auto components
p manufacturingg
f
• Uniform VAT
A ffor all states, GST, labour
b reforms
f demanded
d d d
• Increased allocation for initiatives under National
Rural Employment Guarantee Act (NREGA) & • 100 per cent CENVAT credit utilization on capital goods in
other such initiatives are seen as a positive for the the year
auto sector; particularly for two wheelers and tractors • Excise dutyy expected
p to rise byy 2%
• Excise duty concessions and sops for R&D expenses
incurred towards hybrid vehicle projects expected
• Focus on development of public transport

Di
Direct
t Tax
T M
Measures
• Minimum Alternate Tax (MAT) may be hiked to
20% from the current 18% as a step towards DTC

© Grant Thornton India. All rights reserved. 3

An Overview Key Key policy Direct Tax Indirect Tax Our Offices
Expectations initiatives Proposals Proposals

Key policy initiatives

• Indian automobile market recognised as the second • Endeavour to come up with comprehensive policy to be
fastest growing in the world with a 30% growth used by the Centre and State Government for developing
rate Public-Private Partnerships (PPP)

• National Mission for Hybrid and Electric Vehicles to • National Manufacturing Policy to bring down compliance
be launched for promotion of electric and hybrid burden on industry through self regulation is expected to be
mobility rolled out within three months

• Financial assistance to be provided for speedy • 'Vocationalisation of Secondary Education' to be

implementation of the ongoing Metro projects of implemented to improve the employability of youth
Bengaluru, Kolkata and Chennai. Meanwhile, Delhi
Metro Phase-III and Mumbai Metro Line III are • Set up of Innovation Councils in each state in conjunction
also
l proposed d to be
b taken
k up ini 2011-12
2011 12 with
i h the
h NNational
i l IInnovation
i C Councilil

• Additional funding of `10,000 crore to the National • Additional `500 crore funding towards the National Skill
Highway Authority of India (NHAI) for Development Council (NSDC)
development of highways by way of tax free bonds

© Grant Thornton India. All rights reserved. 4

An Overview Key Key policy Direct Tax Indirect Tax Our Offices
Expectations initiatives Proposals Proposals

Direct tax proposals

• Increase in MAT rate from 18% to 18.5%

• Surcharge rate reduced from 7.5% to 5% for domestic companies and from 2.5% to 2% for foreign companies having a
turnover of more than `1 crore

• Dividends received from a foreign subsidiary proposed to be taxed at 15% (plus applicable surcharge and cess) in the
hands of resident corporate taxpayers. Expenditure in relation to such income is not allowed to be deducted

• Contributions to approved scientific research programmes such as National Laboratories, Universities, and Institutes of
Technology for Scientific Research, to get a weighted deduction of 200% as against 175% under section 35(2AA)

© Grant Thornton India. All rights reserved. 5

An Overview Key Key policy Direct Tax Indirect Tax Our Offices
Expectations initiatives Proposals Proposals

Indirect tax proposals

There has been no increase in duty as expected. The
Auto industry has always been subject to different
rates of customs and excise duty on its inputs and
final product. The current budget is no exception. It
is expected that the much awaited GST would
rationalize the
h current dduty structure.
The following changes have been proposed in the
current budget:
Customs
• Duty rates remain unchanged
• Full exemption from BCD and SAD has been
provided and concessional CVD is p
p proposed
p on
specified parts of the hybrid vehicles, namely, battery
pack, battery chargers, AC/DC electric motors and
motor controllers.
• Concessional import duty is proposed on LED's used
in manufacture of LED lights and fixtures
• A definition for “Completely Knocked Down (CKD)
unit” of a vehicle including two wheelers, eligible for
concessional import duty, is being inserted for clarity
Central Excise
• Duty rates remain unchanged
h d
• Excise duty is reduced to 5% from 10% on kits for
conversion of fossil fuel vehicles to hybrid vehicles
(including parts of such kits)
• Concessional rate of duty @ 10% is prescribed for
hydrogen vehicles based on fuel cell technology
• Concessional rate of excise duty @10% is being
extended to factory built ambulances.
• Excise concessions under Taxi Refund Scheme is
being extended to include vehicles carrying 13
persons including the driver (already available to 7
seater taxis)
• Exemption from excise duty to parts of power tillers
when sent to another factory of the same
manufacturer for manufacturing power tillers
The above concessions intend to give a further
b
boost to the
h AAuto IIndustry
d as a whole.
h l

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An Overview Key Key policy Direct Tax Indirect Tax Our Offices
Expectations initiatives Proposals Proposals

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