How the 2025-2026 Union Budget Impacts the Automotive Industry

Union Finance Minister Nirmala Sitharaman, announced the eighth consecutive Union Budget on February 1, 2025. The biggest talking points have been the income tax rebates (increased from Rs 7 lakh to Rs 12 lakh) and a focused drive towards the EV industry, covering both supply and demand. Several reforms have been announced, which will have substantial impact on the automotive industry.

Let’s check out at the major impacts of the 2025-2026 Union Budget on the automotive sector.

Union Budget 2025: Automobile Highlights

• Aiming to reduce the tax burden on the middle class, the government announced the new tax regime under which there will be no income tax for incomes of up to Rs 12 lakh. This means consumers will have more disposable income to spend on the vehicle purchase including passenger cars, two-wheelers and three-wheelers.

• The Government has proposed an expenditure of Rs 7,000 crore+ in multiple centrally sponsored schemes including Auto PLI (Rs 2,818 crore), PM E-Drive (Rs 4,500 crore), ACC PLI (Rs 155 crore) and SMEC (Rs 12 crore).

• The parameters for identifying MSMEs (Micro, Small and Medium Enterprises) have been updated, increasing the investment limit by 2.5 times and the turnover limit by 2. This will help automotive component producers qualify as MSMEs, providing them better access to financial and policy support.

• A special attention has been given to the electric mobility. The Budget has removed customs duties on 35 key parts needed for the EV batteries including lithium-ion battery scraps and critical minerals such as copper, lead, etc. This will reduce EVs’ production costs, making them more affordable for consumers. It will also ensure a stable and consistent supply for local production, while creating more job opportunities.

• Under the Government’s PLI (Production Linked Incentive) scheme, tax deduction at source (TDS) rules have been simplified or streamlined, and thresholds for certain TDS rates will be increased, reducing the compliance load for taxpayers.

• The Union Budget 2025 proposed schemes such as Dhan-Dhaanya Krishi Yojana, which will benefit nearly 1.7 crore farmers. It aims to make farming more sustainable and profitable by improving farming techniques. The budget also provides free fertilisers to increase agricultural yield and subsidies for agricultural implements such as tractors, small commercial vehicles, two-wheelers, pump sets, etc.

Conclusion

The Union Budget 2025 encourages local manufacturing, supports the growth of electric vehicles, offers tax relief (thereby increasing purchasing power) and enhances the rural economy. It also includes provisions for the MSMEs and all measures to create a robust foundation for the Indian automobile industry.

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