Auto Industry May Take Rs 25,000 Crore Hit In FY26 Due To End-of-Life Vehicle Rules: Report

New Delhi, May 4 (KNN) The Indian automobile industry may face a significant hit of around Rs 25,000 crore to its profits in FY2025–26 due to provisions linked to the Environment Protection (End-of-Life Vehicles) Rules, 2025. 

Industry executives said an ‘innocuous-looking’ clause in the Environment Protection (End-of-Life Vehicle) Rules, 2025, notified by the Ministry of Environment, Forest and Climate Change in January 2025, has raised concerns among automakers after auditors flagged its potentially wide implications, reported PTI.

A specific clause—Rule 4(6)—of the January 2025 notification states, "In case the producer stops its operations, the producer must comply with its Extended Producer Responsibility (EPR) in respect of vehicles already made available in the market till closure of operations..."

Provisioning for Past Sales Raises Concerns

"This rule triggers accounting standard IND AS 37, ' Provisions, Contingent Liabilities and Contingent Assets', which means automakers will have to make substantial financial provisions for the cost of EPR certificates for all vehicles sold over the past 20 years for private, and 15 years for commercial," PTI reported, citing an anonymous industry executive.

The rule would require automobile companies to make provisions for EPR for vehicles sold in the past, even if they have no plans to exit the market, thereby blocking funds and impacting profitability, another industry official said.

Industry Flags Financial Burden to Government

Industry body Society of Indian Automobile Manufacturers (SIAM) has raised the issue with the ministry, highlighting the potential financial burden arising from environmental compensation costs under Ind AS 37.

"Once the environmental compensation (EC) cost is notified by CPCB (Central Pollution Control Board), automobile manufacturers may be required to make substantial cumulative financial provisions under the accounting standards (IND AS 37). Preliminary estimates indicate a potential one-time industry impact of approximately Rs 25,000 crore on a gross basis (around Rs 9,000 crore) on discounted basis in FY2025-26," SIAM wrote in a letter to the ministry, as cited by PTI.

No Relief in Amended Rules

The industry body had sought an amendment to Rule 4(6) to clarify that cumulative provisioning may not be necessary. However, the government’s amendment to the rules issued on March 27, 2026 did not modify the clause.

Segment-Wise Impact and Growth Concerns

Industry estimates indicate that four-wheeler manufacturers could bear an impact of around Rs 14,623 crore, while two- and three-wheeler makers may face a burden of approximately Rs 9,650 crore in FY26.

Another industry executive cautioned that the required provisioning could significantly reduce reported profits for the year and may limit the industry’s capacity to invest in new technologies and future growth initiatives.

(KNN Bureau)