Tax

The evolving tax and trade regulation dynamics are shaping India's automotive sector. The GST rate reduction has given a real boost to the industry, reflected in stronger sales and improved affordability. The movement of GST rate on parts to the general 18% category has also brought much-needed clarity and uniformity, helping reduce classification disputes and litigation.

The clarifications on post-sale discounts have eased procedural and legal complexities for OEMs and component manufacturers. Invoice Management System (IMS) is another important procedural change that companies now need to gear up for. While uptake under Auto PLI has been limited, other policies have been highly beneficial, including state incentives where component manufacturers can recoup benefits due to intra-state sales, and ECMS benefits for electronics component players.

The regulatory clarity, simplification and targeted incentives continue to drive India's automotive growth story.

The higher gross GST collections reflect a strong festive season, higher demand and a rate structure that has been well absorbed by businesses. It is a positive indicator of how both consumption and compliance are moving in the right direction.

India’s edge in the semiconductor race goes beyond incentives. The government is steadily building an ecosystem by investing in skilling, enabling infrastructure, and ensuring policy stability. Competitiveness will rest on ecosystem depth and the ability to deliver with speed and consistency. Early wins in packaging and design give confidence we are moving in the right direction.

India’s edge in the semiconductor race goes beyond incentives. The government is steadily building an ecosystem by investing in skilling, enabling infrastructure, and ensuring policy stability. Competitiveness will rest on ecosystem depth and the ability to deliver with speed and consistency. Early wins in packaging and design give confidence we are moving in the right direction.

With a view to provide a boost to fast-track demergers, it will greatly help the industry if the Government can allow tax neutrality in respect thereof. The industry also seeks clarity on tax neutrality in respect of transfer of investments by the demerged company to the resulting company where the demerged company is an investment holding company or is engaged in financial services business.

After the GST rate cuts in September, a large chunk of goods that moved from 12% to 5% have seen input tax credit accumulation on account of higher rate on input services. While they would be able to claim a refund of input tax credit accumulation on inputs, higher credit linked to input services and capital goods pose a significant working capital concern/cost for these businesses.

The GST compensation cess of all goods other than tobacco and products have been removed from 22 September and the same on the tobacco and products is expected to be discontinued once its purpose, that is, paying off the loans taken to provide compensation support to states is fulfilled.

The proposed Central Excise Bill and the 'Health Security se National Security Cess Bill, 2025' in the Lok Sabha could be in this regard. However, the listed agenda does not specify the industry this may be applied, and hence clarity would emerge once the Bill is introduced in Lok Sabha.

With a rehash of the income statement and significant new disclosure requirements including MPMs (Management defined performance measures), IFRS 18 will be a strategic shift in how performance is communicated to the key stakeholders. Early planning could help in unlocking better insights.

The regulatory landscape, especially FEMA and FDI regulations, is constantly evolving in the direction of ease of doing business. In this regard, it is imperative that compliance teams within businesses proactively engage with all stakeholders including the concerned authorities in order to ensure compliance at a minimum but also add strategic advantage to business operations.

The GST rate rationalisation is a very good move, especially in the current context of US tariffs which have caused stressed in certain sectors and the overall economy. The rate reduction from 12% to 5% and from 28% to 18% is likely to drive comsumption. In addition, consumers are likely to benefit from reduced prices of most goods due to competitive pricing.

The proposed GST rate rationalisation measure is a welcome step toward simplifying the Indirect Tax framework. By reducing the slabs and lowering rates on essential goods, the reforms are likely to have a significant impact on certain industries where rates are touted to be rationalised. The industry would need to prepare itself with impact assessments, pricing re-recalibration and impact on transition stock to ensure a smooth shift to the new regime. The messaging around the removal of the compensation cess is also encouraging, as it will simplify the tax structure, allowing flexibility to the Government to make it more rational and balanced.

This approach reflects a shift towards clarity and consistency in taxation. It can help reduce complexities that have arisen since GST implementation, minimising classification disputes, ensuring that exceptions are applied judiciously where they are truly needed. The reforms would surely bring in predictability for businesses and consumers alike, a step towards a more stable, transparent, and future-ready tax ecosystem.

The clarification by CBIC on GST rules for post-sale discounts will help industry and trade execute such transactions with greater certainty and reduce disputes around what has long been a contentious issue. At the same time, for scenarios involving agreements with end customers for passing on specific benefits to end-consumers through dealers in the supply chain, businesses may need to carefully revisit and evaluate their positions.

As per the latest EPFO circular dated 22 July 2025, from August 2025 onwards, employers must accurately report gross wages in the Electronic Challan-cum-Return (ECR). This is with the intention to enable proper identification of employees eligible under the ELI Scheme. Incentives under the ELI scheme are envisaged for the employer and employees only where the eligible employees' gross wages reported in ECR does not exceed INR 1,00,000 per month. Hence, the importance of appropriate determination of and reporting of gross wages has been reiterated by EPFO.

Indian Government has launched a revamped Overseas Citizens of India (OCI) portal. The updated portal aims to provide enhanced functionality, improved security, and a user-friendly experience for the existing over 5 million OCI cardholders and new users.

Multiple features are said to have been introduced in the new OCI portal:

• User sign-up and segregation of registration menu
• Autofill of user profile details in registration forms
• Dashboard displaying completed and partially filled applications
• Integrated online payment gateway for those who filed in FRROs
• Seamless navigation across application steps
• Categorisation of requisite documents to upload based on application type,
• Editing option to the applicant at any stage before submission,
• Integrated FAQ in the portal,
• Reminder to the applicant to verify information before final submission,
• Display of eligibility criteria and requisite documents based on selected application type,
• In-built image cropping tool for uploading applicant photos and signatures.

A step towards providing an up=to-date user interface to ensure seamless registration process for OCI cardholders.