Friday finally brought some good news for the Indian Auto Sector as the government slashed corporate tax to boost the sagging economy.
This comes as the much-needed fillip for the auto industry as tax reduction means more money for the local manufacturers. This, in turn, is likely to fuel more demand.
With Durga Pooja and Diwali on the anvil, the companies normally reduce the prices to attract buyers and beat the competition. All this news clearly indicates the benefits would be passed on to the consumers.
Auto sales are also likely to gain following the end of Pitra Paksh (period when Hindus consider buying any major product or vehicle inauspicious). With the beginning of festivals which also means the end of Pitra Paksh, the demand is bound to see a spike.
Companies, therefore, are expected to come up with competitive offers. So if you are planning to buy a car or a vehicle, be prepared with your research.
Prior, amongst many reforms, Finance Minister Nirmala Sitharaman on Friday had announced a reduction in corporate tax from 30 per cent to 22 per cent. This means the effective tax to be paid by the companies will be 25.17 per cent.
The automotive sector, which has seen its worst figures in decades over the last few months is definitely going to benefit from this.
The tax cut will boost the morale of the major car and bike makers in India who are undergoing what could be called a crisis in sales and production supply chain.
Society of Indian Automobile Manufacturers (SIAM) welcomed the government's tax cut initiatives and said that this could provide a much-needed push to the local manufacturers in the auto sector.
The Stock market soared up post the announcement with top gainers from the auto sector being Eicher Motors Ltd (13.38%), Hero MotoCorp Ltd (12.34%) and Maruti Suzuki India Ltd (10.85%).
The government also threw in an incentive for companies looking to start manufacturing in India. These companies, if start production before 31 March 2021 will have to pay an even lower tax rate of 15 per cent.
Minimum Alternate Tax (MAT) was also reduced from 18.5 per cent to 15 per cent. This will lure such companies into investing in research and development activities in India.