Income Tax Relief On Earnings Up To Rs 12 Lakh Unlikely To Revive Small Car Demand Says Maruti Chairman

Income tax relief on annual earnings of up to Rs 12 lakh is unlikely to revive demand for small cars, which is critical for overall growth of the industry in India, and the government needs to take steps to address the issue, Maruti Suzuki India Chairman R C Bhargava said on Friday.

Only 12 per cent of households in India are above the annual income bracket of Rs 12 lakh and the rest 88 per cent are below that level where they cannot afford cars costing Rs 10 lakh and above, he said at the company's Q4 earnings call.

The company, which has a capex of Rs 8,000-9,000 crore for the current fiscal, is looking to enhance exports this year with the domestic market expected to remain in slow lane. Bhargava said the company will start sales of its electric model e-Vitara from September this year with the bulk of 70,000 units to be produced to be exported.

He also announced that the company would introduce another SUV later this year. The veteran industry leader stated that with the cost of owning an entry level car going up by as much as Rs 90,000 per unit, people are unable to afford and thus the domestic market, which remains grossly underpenetrated, has been witnessing muted growth.

Bhargava noted that the income tax relief given in the FY26 Budget is not enough to encourage the buyers.

"For the car sales to revive, small cars have to become more affordable," he stated.

He emphasised on lower tax structure, reduction in acquisition cost due to less regulation as the main factors required to uplift the small car segment.

"Government, I think, has recognised, to a large extent, the fact that without the revival of the small car market, car market growth in India will always remain muted," he said.

When asked if the income tax relief provided in the Union Budget 02025-26 on annual income of up to Rs 12 lakh will help drive demand for cars, he said, "I doubt it. How much money will people get? The cost of a small car has gone up by around Rs 90,000... people have other expenditures. There is an increase in household expenditures. People are not going to put all their income tax savings, put it aside and use it to buy a car. They have other priorities also..."

Bhargava said the household income distribution data suggests that 200 million households in the country, out of 300 million households, have income below USD 6,000 per year.

He said about 12 per cent of households in India are in above Rs 12 lakh annual income category. "To buy a car costing Rs 10 lakh plus, you normally would need to be in this household bracket of Rs 12 lakh plus, and therefore car buying in India is largely restricted to this 12 per cent of the households," he stated.

"How can you get high growth if 88 per cent of the country is below levels of income where they cannot afford these cars costing Rs 10 lakh and above," he added.

Small cars have become unaffordable to these people because of the high cost of implementing regulatory measures, he said.

"We have seen that in this current year, the sale of small cars has declined by about 9 per cent. So if 9 per cent is the decline in cars which are bought by 88 per cent of the people in this country, where will you get growth? I think it's a fact which people have to look at and recognise," Bhargava said.

It's not as some people seem to think that India has become affluent and everybody wants to buy the expensive cars, Bhargava said. That would happen if the proportion of households having income above Rs 12 lakh increases from 12-50 per cent, he said.

"Then you would have this situation where there would be a big possibility of selling large cars. But that's not true today, and it's a fallacy to think that the decline in the small car market and the growth of the SUV market is a result of people's aspirations changing, and people wanting to buy big cars and not wanting small cars. It's not true," Bhargava said.

"What is happening is that people can't afford small cars anyway. That's as far as the market situation is concerned," he added.

Bhargava said that with demand expected to remain soft in the domestic market, the car market leader would largely depend on exports for growth in the current fiscal.

The company exported 3.22 lakh units last fiscal, the highest number ever in a financial year.

"Our expectation is that we will try and increase exports by about 20 per cent and that is going to be the main driver of our total production, of our sales, of our profits," Bhargava said.

On capex, he noted that work is going on at the second unit in the Kharkhoda plant with the first unit has already been commissioned.

"The second unit work will continue. We have to see the market situation to decide exactly when we want to commission it," he said.

Bhargava said the annual production in the six-seven months this fiscal would be around 70,000 units.

"We will also be launching one more SUV later this year," he added. Bhargava stated that the entire model range of the company would start having six airbags from this year onwards.

"The government was very keen that six airbags should be in all cars. We will implement this desire of the government," he said.

He noted that the company aims to sell 7 lakh CNG cars this fiscal, having sold 6 lakh units in FY25.

Replying to a query, Bhargava said the company is looking to develop hybrid powertrains for small sized models as well.

He also emphasised on the need for better urban traffic planning and infrastructure development.

The inadequacy of infrastructure leads to increased fuel consumption, pollution, and wasted time on the road, he added.

"You spend so much time on the road, you waste so much fuel on the road. We create so much extra pollution on the road merely because of infrastructure inadequacies," he stated.

Bhargava noted that the company expects to achieve a 50 per cent market share by 2031.

Replying to a query, he noted that the impact of tariffs on India's car industry is going to be minimal as exports to the US were not significant.

"All of these things (tariff issues) are going to get worked out in the next two-three months, and there might be some slight slowing down in global growth rates, but I don't think it's going to be anywhere near a recession," Bhargava said.

On risks for domestic industry if import barriers were eased, he stated: "I don't fear competition. I think Maruti can compete with anyone, and I think the government is looking into this and negotiating the state barriers. I'm one who feels that barriers should come down.