Depreciation benefit on CVs may run till June

NEW DELHI: The government plans to extend higher depreciation benefit of 50% on commercial vehicles by three months till June 2009.

The higher depreciation rate, which translates into lower tax liabilities and lower insurance premiums for buyers of commercial vehicles, is set to lapse by the end of March.

"The finance ministry's approval for the extension is expected this week," said an official with the ministry of heavy industry.

Extension of the benefit will help commercial vehicle makers such as Ashok Leyland, Eicher Motors and Tata Motors to sell more units.

Higher depreciation on commercial vehicles leads to lower tax burden, as the depreciation amount can be set off against the tax that the owner is liable to pay on profits from commercial utilisation of the vehicle.

Vehicle owners also benefit from lower insurance premiums on the vehicle, as the total insured sum goes down with an increase in depreciation.

In December, the government had announced a 50% depreciation benefit on commercial vehicles purchased during January-March 2009 compared with 20% earlier to boost consumer demand amidst a slowdown. Commercial vehicles prices came down following the government���s move and a reduction in excise duty from 10% to 8% in February also helped.

Domestic sales of commercial vehicles such as buses and trucks jumped by 22% from 17,920 units in December 2008 to 23,157 units in January 2009. Sales further increased to 31,069 units in February 2009. "A substantial growth is expected in March as well," said a Society of Indian Automobile Manufacturers (SIAM) official, requesting anonymity.

A Tata Motors spokesman confirmed that "the depreciation benefit has generated interest amongst customers". However, he refused to comment on the extension, which is yet to be announced. Tata Motors' domestic sales of commercial vehicles increased from 12,053 units in December 2008 to 14,708 units in January 2009 and further to 20,391 units in February.

Ashok Leyland sold 2,669 commercial vehicles units in February 2009, about 32% more than those in January.
While the market sentiment is slowly improving with the stimulus packages and the softening of interest rates, the government officials believe that an extension of the benefit would help in stabilising the demand in the market, the official said.

It will also incentivise light commercial vehicle buyers who could not enjoy the benefit of the latest excise duty cut of 2%, as it remained unchanged at 8% for them.

The depreciation benefit for vehicles purchased in the first quarter of this calendar year boosted sales, as it attracted buyers who could avail depreciation benefits for income-tax purposes. "A large number of purchase decisions are taken by people who look to avail tax benefits. However, the auto industry will take at least two years to see the kind of growth it was witnessing till recently," said an industry official, requesting anonymity.