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<\/div>\n<\/div>\n<\/div>\nBy Parul Nagpal, Tax Partner, EY India<\/span>India\u2019s automobile industry is entering an exciting phase of growth. Today, India is the world\u2019s third-largest automobile market, contributing nearly 7% to GDP and almost half of the country\u2019s manufacturing GDP, while supporting over 37 million jobs. With electric mobility, localisation, exports and advanced manufacturing gaining momentum, the sector will play a key role in India\u2019s journey to becoming a global manufacturing hub.As GST<\/a> completes nine years, the focus may now shift from implementation to the future. The next phase of reforms may ensure that India\u2019s tax system keeps pace with the changing needs of the automotive industry.GST has already transformed the sector. Multiple indirect taxes have given way to a simpler structure, with 5% GST on electric vehicles<\/a>, 18% as the standard rate for most vehicles and 40% for a few luxury and high-end vehicles. Also, the standard rate of 18% for most auto components is a welcome move. The removal of compensation cess on most vehicles and the move towards a more streamlined rate structure have reduced classification disputes and brought greater certainty for businesses. These reforms have also improved the way the industry operates. A simpler tax structure has made vehicles more affordable, improved credit flow across the supply chain and removed interstate tax barriers. Manufacturers have been able to optimise warehouses, redesign supply chains and improve operational efficiency. Together, these changes have strengthened India\u2019s position as a competitive manufacturing destination.However, as the industry evolves, the GST framework must keep pace. Several targeted interventions may help address emerging challenges and unlock the sector\u2019s full potential:<\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n As initiatives such as PLI and PM E-DRIVE gather momentum, tax policy should continue to support India\u2019s larger manufacturing ambitions. A stable, predictable and business-friendly GST framework may encourage investment in electric mobility, advanced manufacturing and future technologies.Nine years after its introduction, GST has successfully created a common national market and transformed India\u2019s indirect tax system. For the automobile sector, it has reduced tax cascading, improved efficiency and brought greater certainty. The next phase of reforms does not require a complete overhaul. Instead, it may focus on fine-tuning the system aligning GST rates with emerging technologies, resolving legacy credit issues, simplifying input tax credit provisions and making refunds faster.A good tax system should grow with the economy it supports. As India\u2019s automotive industry prepares for its next phase of growth, GST has the opportunity to become not just a tax reform, but a key enabler of investment, innovation and global competitiveness. Anshul Girotra, Senior Tax Professional, EY India, also contributed to the article.<\/span><\/div>\n\n
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