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The Indian government has introduced significant tax reductions on Completely Knocked Down (CKD) and Semi-Knocked Down (SKD) vehicles in the Union Budget 2025-26. This move aims to boost the automotive sector by making high-end motorcycles and luxury cars more affordable while encouraging local assembly and manufacturing.
Revised Import Duties
The government has rationalized the customs duty structure for vehicles imported as CKD and SKD units. Below are the updated tax rates:
• Engine capacity below 1600cc:
o Completely Built Units (CBUs): Reduced from 50% to 40%
o SKD units: Reduced from 25% to 20%
o CKD units: Reduced from 15% to 10%
• Engine capacity above 1600cc:
o CBUs: Reduced from 50% to 30%
o SKD units: Reduced from 25% to 20%
o CKD units: Reduced from 15% to 10%
For Cars:
• Luxury Cars:
o CBUs: Reduced from 125% to 70%
o SKD units: Reduced from 25% to 20%
o CKD units: Reduced from 15% to 10%
How Duties Are Calculated
Import duties in India depend on the category of the vehicle:
• CBU (Completely Built Unit): Fully assembled vehicles imported directly, attracting the highest import duties.
• SKD (Semi-Knocked Down): Partially assembled vehicles that require further assembly in India, thus enjoying lower duties.
• CKD (Completely Knocked Down): Vehicles imported in parts and assembled in India, subject to the lowest tax rates.
The reduction in duties for CKD and SKD units aligns with the ‘Make in India’ initiative, promoting local production and assembly.
Impact on the Automotive Industry
1. More Affordable Vehicles
With reduced import duties, premium motorcycles and luxury cars will become more accessible to consumers. Brands such as Harley-Davidson, Ducati, and BMW may witness increased sales due to competitive pricing.
2. Boost to Local Manufacturing
Lower CKD and SKD duties encourage global automotive brands to expand their assembly operations in India. This move fosters technology transfer, employment generation, and skill development in the sector.
3. Strengthening International Trade Relations
India has faced trade concerns regarding high tariffs on imported vehicles, particularly with countries like the US. The revised tax structure can improve trade relations, fostering new partnerships and investments.
4. Economic Impact
The initial reduction in customs revenue might be offset by increased imports and higher sales volumes, generating revenue through GST and other local taxes.
5. Competitive Market Dynamics
With lower prices for imported vehicles, Indian manufacturers like Tata, Mahindra, and Hero MotoCorp may face increased competition. This could lead to innovations and improvements in locally manufactured vehicles.
Conclusion
The Indian government’s decision to reduce import duties on CKD and SKD vehicles is a strategic move to make high-end motorcycles and luxury cars more affordable while strengthening local manufacturing. This policy change is expected to enhance the automotive industry’s growth, improve trade relations, and benefit consumers with better pricing and wider choices. As the market adapts, it will be interesting to see how local and global brands respond to these changes.
