Govt to not extend tax breaks to automakers beyond Dec 31

A tax break was first granted to auto makers in February to help revive sluggish car sales and was later extended in June

The government will not extend tax breaks to automakers beyond Dec. 31, a senior government official told Reuters, as the government looks to shore up its stretched finances before the end of the financial year despite the potential impact on car sales.

The decision comes at a time when weak tax receipts in a sluggish economy are making it difficult for India to meet its ambitious fiscal deficit target of 4.1% of gross domestic product for the year to Mar. 31, 2015.

A tax break was first granted in February to revive sluggish car sales and later extended until the end of the year. Automakers had been hoping the concession, amounting to 3-6% of the price of a car before the imposition of all duties, to continue in the new year.

"Duty concessions will lapse. We are not extending it," the official, who has direct knowledge of the matter, told Reuters. He declined to be identified because the information had not yet been made public.

India's car sales, which rose 3.8% in the eight months from April 1 against the same period last year, are set to miss an earlier growth target of 5-10% for fiscal 2015 set by the Society of Indian Automobile Manufacturers.

"To the extent the excise duty goes up, car prices will go up," said R.C. Bhargava, chairman of Maruti Suzuki, India's biggest carmaker.

"It will temporarily affect sales ... but I don't think it will have any long-term impact," he said, adding that the company has yet to hear from the government on the matter.

Rising input costs have already forced automakers including Indian units of General Motors, Nissan, Hyundai, BMW and Mahindra & Mahindra to announce price rises from next month.

India will also end tax breaks on consumer durables, the government official said without elaborating further.