Income Tax Relief to Drive Surge in Automotive Sales

The Union Budget's increase in the income tax exemption to Rs 12 lakh is anticipated to significantly boost demand for two-wheelers and passenger vehicles. With an estimated tax benefit of Rs 1 lakh crore, Indian middle-class spending is expected to rise, particularly benefiting the auto sector.

In an unprecedented move, the Union Budget has increased the income tax exemption limit to Rs 12 lakh, a decision anticipated to catalyze a surge in demand for two-wheelers and passenger vehicles. Global brokerage firm Jefferies has projected that the proposed tax relief will provide India's middle class with tax benefits amounting to approximately Rs 1 lakh crore, thereby fuelling discretionary spending, notably in the automotive sector.

According to the Jefferies report, the income tax cuts are expected to aid around 3.5 crore taxpayers, offering an average annual benefit of nearly Rs 30,000 per individual. This boost in spending power could significantly elevate sales of two-wheelers and passenger vehicles, especially in urban centers. As the market size for passenger vehicles and two-wheelers is projected to grow in FY25, increased spending power from tax cuts could further stimulate this growth.

The formation of the eighth pay commission, aimed at recommending salary hikes for central government employees, coupled with anticipated public sector pay increases in FY27, is poised to provide additional momentum to the auto sector. Despite a forecasted robust growth for the two-wheeler and passenger vehicle markets, the outlook for the truck industry remains modest due to slower capital expenditure growth.