The Indian automobile industry is facing a hit of around ₹25,000 crore on the bottom line for FY26, due to the provisions under the Environment Protection (End-of-Life Vehicles) Rules 2025. PTI has reported that the rule has triggered an accounting standard clause that requires automakers to make budgetary provision for environmental compensation for vehicles sold in the past.
The rules, which were notified by the Ministry of Environment, Forest and Climate Change in January 2025, have triggered accounting requirements that may compel automakers in India to set aside funds for environmental compensation linked to vehicles sold in the earlier years. The 'Rule 4 (6)' of the January 2025 notification stated that 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.
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The rule triggers accounting standard IND AS 37, 'Provisions, Contingent Liabilities and Contingent Assets', which means automakers in the country will have to make substantial financial provisions for the cost of EPR certificates for all the vehicles that were sold over the past 20 years in the private, and 15 years in the commercial segments, the news agency has quoted an industry executive.
Impact on automakers
Due to this rule, automobile companies will have to make provisions for EPR for vehicles sold in the past, even if they have no intention of exiting the market, thereby blocking funds and affecting their profits. PTI has quoted an industry executive saying that once the provision is realised in the accounting books, it would significantly reduce the profits of that year for the entire auto industry.
{{/usCountry}}Due to this rule, automobile companies will have to make provisions for EPR for vehicles sold in the past, even if they have no intention of exiting the market, thereby blocking funds and affecting their profits. PTI has quoted an industry executive saying that once the provision is realised in the accounting books, it would significantly reduce the profits of that year for the entire auto industry.
{{/usCountry}}The industry body Society of Indian Automobile Industry (SIAM) had also taken up this matter with the ministry, highlighting the financial impact on the bottom line of automakers due to the environmental compensation under IND AS 37. In a letter to the ministry, SIAM wrote that 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 ₹25,000 crore on a gross basis (around ₹9,000 crore) on a discounted basis in FY2025-26," SIAM wrote in the letter. The apex auto industry body in India had sought the possibility of resolving the issue through amending Rule 4(6) before EC cost notification to clarify that cumulative budgetary provisioning may not be required.
However, the ministry didn't change the clause in its amendment notification to the Environment Protection (End-of-Life Vehicle) Rules, 2025, which was issued on March 27, 2026.
How will different segments bear the brunt?
According to industry estimates, the overall industry impact on four-wheeler manufacturers due to this rule will be about ₹14,623 crore. For the two and three-wheeler manufacturers, the total impact is estimated to be around ₹9,650 crore for FY26.
In a nutshell, this policy is slated to make a huge dent in the auto industry's bottom line, wiping off ₹25,000 crore from profits, and it may affect the ability of many manufacturers to further make investments in new technologies and fuel their growth plans as well.