Budget 2021 | Auto sector hopes for a reduction in GST, says KPMG official

By Waman Parkhi

The auto sector in India is one of the worst affected sectors on account of the Covid-19 pandemic. While the sector has shown good signs of recovery in the third quarter of 2020, it requires strong support from the Government. Union Budget 2021-22 could provide the much-needed push, to help revive the sector.

Union Budget 2021-22 may lead to the introduction of policy-level initiatives for providing a boost to the auto sector in Part I of the Budget. An important measure in this regard could be the vehicle scrappage policy, incentivizing scrapping of vehicles more than 15 years old. If implemented, this policy could boost automobile demand by phasing out old and polluting vehicles. Another much eagerly awaited measure is the release of the details of Production Linked Scheme (PLI) for automobiles and auto components as well as battery cell manufacturing.

From a GST standpoint, the industry is expecting a temporary reduction in GST rates from 28 per cent to 18 per cent as well as withdrawal of GST input tax credit restriction on automobiles, to reduce the cost of vehicles. However, considering the long history of applicability of these provisions (even before GST), the chances of implementation of the changes appear to be low. Moreover, GST changes are not part of the Budget and are brought out in the GST Council meeting.

In respect of electric vehicles (EVs), steps for easier financing of EVs and tax breaks for expansion of charging infrastructure could be few expectations.

(The author is a Partner, Indirect Tax, KPMG in India)