vehicle scrappage policy: Vehicle scrappage policy IT rebate to boost car sales

The income tax rebate and a monetary allocation for vehicle scrappage policy announced in the Union budget is likely to boost car sales even as an exemption in customs duties for importing machines and capital goods required to manufacture lithium-ion cells, will give a fillip to battery operated vehicles and drive down their costs in the long run. A sharp jump in allocation of 33% in infrastructure projects is also set to boost truck sales, they said. said auto industry executives and analysts.

Commenting on the impact of the income tax rebate on entry level cars, Shashank Srivastava, executive director, Maruti Suzuki said, “The income tax rebate and the reduction in income tax across the various categories will increase the propensity among the salaried class to spend,” he stated.

A series of legislation on safety and emission has been jacking up car prices making such cars unaffordable for a large swath of buyers as a result, sales of small cars fell to 1.15 million units last fiscal, from a peak of 1.55 million in FY19.

Commenting on the impact of the scrappage policy, RC Bhargava, chairman, Maruti Suzuki India told ET. “A lot will depend on how fast the government is able to scrap the vehicles.” The move will give an impetus to replacement demand, he said.
Vinod Aggarwal, president, Siam said the tax rationalisation and outlay for vehicle scrappage announced in the budget will help the sentiments and drive sales. “The sharp jump in infra spend will give a boost to truck sales,” he said.

The government has approved the scrapping of more than nine lakh government vehicles, which are more than 15 years old, and polluting buses and cars will go off the road and new vehicles with alternative fuels will replace them. This will further reduce air pollution to a great extent,” Nitin Gadkari, minister of transport and highways said on Monday at an event.

According to Bhargava, more than anything else, the economic growth the country sees will drive auto sales. “If the economy continues to grow at 6%-6.8%– as predicted in the Economic Survey, it’s a reasonable one, and would help sales,” he said. In her budget speech Finance Minister, Nirmala Sitharaman, said that those with income of up to Rs500,000 do not pay any income tax in both old and new tax regimes. “I propose to increase the rebate limit to Rs700,000 in the new tax regime. Thus, persons in the new tax regime, with income up to Rs700,000 will not have to pay any tax,” she said.

Multiple proposals in the Union Budget are seen favourable for the automotive sector, said Shamsher Dewan, Senior Vice President & Group Head – Corporate Ratings, ICRA Ltd said. “A sharp 33% increase in capital investment outlay, identification of critical transport projects for first and last mile connectivity, and relaxation in personal tax rates shall aid the demand for the auto sector,” he said.

Meanwhile, in an announcement that is a boost for companies looking to make EV battery cells domestically and bring down prices of EVs in the long term, the government has exempted customs duties for importing machines and capital goods required to manufacture lithium-ion cells.

“To further provide access to green mobility, customs duty exemption is being extended to import of capital goods and machinery required to manufacture lithium-ion battery cells for batteries used in electric vehicles,” finance minister Nirmala Sitharaman said.