In the Union Budget 2025-26, the government introduced significant income tax cuts, which are expected to have a major impact on consumer spending, particularly in urban areas. With the income tax exemption limit raised to Rs. 12 lakh (US$ 13,775.18), this move is set to boost demand for two-wheelers and passenger vehicles across India. The tax relief is expected to provide a Rs. 1,00,000 crore (US$ 11.48 billion) benefit to middle-class taxpayers, translating into increased discretionary spending, especially in urban centers where demand for automobiles is growing rapidly.

According to a report by Jefferies, the tax cuts will benefit around 3.5 crore taxpayers, each receiving an average annual benefit of Rs. 30,000 (US$ 344.38). This increase in disposable income is expected to have a direct impact on the automobile market, particularly the two-wheeler and passenger vehicle segments. With the market size of 4.3 million passenger vehicles and 21 million two-wheelers in FY25, the expected surge in demand will drive growth in the auto sector.

Two-wheeler sales are projected to grow at a strong 13-15% compound annual growth rate (CAGR), while passenger vehicles are forecasted to maintain a 9% CAGR from FY25 to FY27. This growth is not only attributed to the tax relief but also to the anticipated salary hikes for public sector employees in FY27, which will provide an additional boost to the auto sector. As the Indian middle class sees its purchasing power increase, both two-wheelers and tractors are projected to experience strong demand, particularly in rural areas.

Furthermore, the Union Budget's emphasis on fiscal consolidation could enable the Reserve Bank of India (RBI) to adopt a more accommodative stance in its upcoming Monetary Policy Committee meeting scheduled for February 7, 2025. This shift in monetary policy could further stimulate consumer spending and economic growth, creating a favorable environment for the automobile sector to thrive in the coming years.

With these positive developments, the automobile industry is poised to experience significant growth, driven by both consumer confidence and favorable macroeconomic conditions. As more people gain access to increased disposable income, particularly through tax relief and salary hikes, demand for two-wheelers and passenger vehicles is expected to rise significantly.

To explore the latest trends in the automobile market and learn more about the impact of Union Budget 2025-26 on various sectors, visit Best IPO to Apply Now - IPO List 2024 for up-to-date news on the auto sector and consumer market growth. Additionally, stay informed on Top News Headlines for ongoing updates on the automobile industry and tax relief benefits for consumers.

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