Did India’s Budget 2020 ease Tax Burden on Cars?

Last Updated at: Jun 24, 2020
Did India's Budget 2020 ease Tax Burden on Cars?
Sources from the Government have revealed that they are planning to levy a uniform road tax for personal vehicles across the country soon. This will help the states to protect revenues as some buyers tend to purchase vehicles in states where taxes are lower, resulting in loss to states where taxes are higher.


The auto sector has always been one of the fuelling factors of economic growth, employing 32 million people across the country. Anything that the sector benefits significantly impacts every sector. Let us look deeply into how Budget 2020 impacted the auto sector.

Automobile Industry in 2019 

In 2019, The government was looking to removing certain items that levy huge taxes under the GST regime. The automobile sector was most likely to be removed as it attracts 28% GST along with aircraft, star hotels, and personal-use items among others.

The sales of passenger vehicles witnessed the steepest drop in 18 years in May 2019, with more than half a million vehicles lying unsold at dealerships. According to the Society of Indian Automobile Manufacturers (SIAM), for April 2019, the percentage of auto sales dipped by 16% annually. In total, the wholesale passenger vehicle sales declined by 17%, owing to various reasons. Even the government’s tax receipts were 5% lower than that of the previous year.

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Automobile Industry in early 2020 and Budget 2020 expectations

At present, the industry is in trying times and is facing major shutdowns.  According to some reports, major seven manufacturers, including Tata Motors, Mahindra, Maruti Suzuki have announced factory shutdowns.

In 2019, there were numerous hikes in fuel prices, constant changes in safety-related regulations, insurance premiums norms, axle load norms, uncertain future of BS-1V vehicles, and severe lending norms by banks, etc. The car prices have seemed to roar high 20% over that of the previous year. This hike is due to many mandatory additions like reverse sensors, airbags, crash conformity standards, ABS, etc. The compulsory upgrading to Bharat State VI emission standards has also caused a price hike.  These contributed to a gloomy state of the overall automotive demands in the country. 

Budget 2020

On 1st February, the finance minister of  India, Mrs.Nirmala Seetharaman announced the Budget 

Ever since the 2019 budget was announced, the manufacturers have requested for GST reduction on cars in the budget 2020. They believed that with decreased GST expense, customers will be more inclined to purchase cars. 

The GST on vehicles was expected to be brought down from 28% to 18%. This was their major request along with incentive-based scrapping policy, incentivize private buyers of cars (electric or hybrid), and the abolition of duty on lithium-ion battery cell import.

However, as the auto sector kept posting questions, the finance minister said: “The approach towards the budget was not industry or sector-specific”. Even though the few industry experts believe that the auto sector was majorly ignored in the union budget 2020, the others find the government policies for developing technology, R&D, etc very intriguing and helpful.

Budget 2020: Expectations Vs Reality for the auto sector

Many manufacturers and dealers showed a belief that with consumer’s steady need for comfort, there will be definite growth in sales.  

But the sudden pandemic crises might have caused turmoil in the belief. With all dealerships and factories being closed under nationwide lockdown, it is going to be a challenge for the industry to stand back strong soon. Having said that, the possible avoiding of public transportation might make people navigate towards car purchases. Hence, It is ok to be hopeful about the post-lockdown scenarios. 

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A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.