The Finance Minister said that the decision was unlikely to hit tax collections as it would boost demand for these goods which will in fact raise revenues.

The Government on Wednesday extended for six months the steps to revive growth former Finance Minister P. Chidambaram had taken in his Interim Budget in February.

On February 17, in the UPA government’s Interim Budget had lowered excise duties on automobiles, certain types of capital goods and some consumer durable goods so that the consequent lower price could generate demand for these products.

“To give relief to the automobile industry, which is registering unprecedented negative growth, I propose to reduce excise duty,” Mr. Chidambaram had said presenting the Interim Budget in Parliament.

After Mr. Chidambaram’s cuts the excise duty for small cars, scooters, motorcycles and commercial vehicles had come down to 8 per cent from 12 per cent earlier. SUVs attract excise duty of 24 per cent as against 30 per cent earlier. The excise duty on large cars will stay at 24 per cent compared with 27 per cent earlier and that on mid-sized cars at 20 per cent. It was 24 per cent before the Interim Budget cuts. The former Finance Minister had also cut excise duty on all capital goods from 12 percent to 10 percent.

Union Finance Minister Arun Jaitley ‎on Wednesday extended all those concessions till December 31 saying that the decision could not have been delayed till the tabling of his first budget in Parliament on July 10: “Since the concessions given in February were valid only till June 30, the Finance Ministry today decided to extend them for a period of six months till December 31”.

Mr. Jaitley said that the decision was unlikely to hit tax collections as it would boost demand for these goods which will in fact raise revenues.

In the run up to the Interim Budget, car sales had declined for four straight months with a fall of 7.59 percent to 1,60,289 units in January. In May, the latest month for which official data is available, car sales grew 3 percent to 1.49 lakh units. The industry attributed the growth to cut in excise duty on vehicles announced during the interim budget and a decline in negative sentiments on account of formation of new government at the Centre. The automobile industry body SIAM had in its recommendations for the Budget to Mr. Jaitley demanded continuation of the excise duty cuts as help for the struggling sector.

Chennai Bureau reports:

Automobile shares in limelight

Shares of automobile companies went up in late trade after the Finance Minister Arun Jaitley announced extension of concessional excise duty on automobiles, capital goods and consumer goods.

Shares of Maruti Suzuki were up by Rs. 61.75 (2.56 per cent) to close at Rs. 2,477.40 on the BSE. Bajaj Auto gained Rs. 58.55 to Rs. 2,279 and Ashok Leyland by Rs. 2.15 (4.98 per cent) to Rs. 38.10. Mahindra & Mahindra, Eicher Motors and Tata Motors also registered marginal gains.

Shares of auto component maker Wheels India rose sharply by Rs. 91.15 (12.93 per cent) to Rs. 796.05. Two-wheeler majors TVS Motor gained Rs. 4.15 (2.93 per cent) to Rs. 145.85 and Hero MotoCorp Rs. 26.40 (1.01 per cent) to Rs. 2,640.05.