US Tax Bill Clears House, Sparking Sector-Specific Ripples Across Indian Industries

A significant piece of legislation, dubbed the "Big Beautiful Tax Bill" by proponents, has narrowly passed the US House of Representatives with a 215-214 vote.

The proposed changes carry a mix of direct and indirect consequences for various sectors in India with exposure to the US market.

The Section 45X advanced manufacturing production credit, vital for solar panel manufacturing, is slated to remain valid until Dec. 31, 2031, for most components. However, wind components will see this credit expire earlier, in 2027.

This phased approach is likely to create a delayed impact on the balance sheets of companies reliant on these credits.

Indian clean energy firms with significant US exposure, such as Waaree Energies, may face pressures on new order wins. The company derived 58% of its FY24 revenues from exports, with 99% of those exports destined for the US market.

Indirectly, the bill aims to benefit domestic US production by hastening more stringent restrictions that would disqualify projects perceived to benefit China from receiving credits, Bloomberg reported.

These limitations could render the credits ineffective for many projects and are expected to come into effect next year.

While these restrictions on projects with connections to specific countries like China and Russia, they could indirectly benefit Indian firms by reducing competition.

An overarching concern is that a potential overall reduction in demand might outweigh this advantage.

The bill also confirms the extension of TCJA provisions, including corporate tax cuts, which are expected to stimulate US business activity.This proposed extension of corporate tax cuts, could stimulate US economic activity and, consequently, increase demand for IT services.

The US auto market is also in line for policy-driven shifts. Relief on taxes for car loan interest can provide a boost to US car sales.

This, in turn, can benefit Indian auto component manufacturers like Bharat Forge Ltd. and Samvardhana Motherson International Ltd., which have significant export operations to the US.

However, the electric vehicle segment faces a different trajectory. A popular consumer tax credit of up to $7,500 for the purchase of new electric vehicles is set to be fully eliminated by the end of 2026, according to a Bloomberg report.

Furthermore, only manufacturers that have sold fewer than 200,000 EVs by the end of the current year will be eligible for this credit in 2026. Tax incentives for the purchase of commercial EVs and used EVs are also slated for repeal. This potential downturn in EV demand could mean that auto component companies exporting EV parts to the US may face reduced orders.

While the bill does not incorporate calls for a lower corporate tax rate specifically for domestic producers, it does introduce a significant incentive for new US-based facilities.

The legislation allows for 100% depreciation for any new "qualified production property," such as a factory, if construction commences during the current presidential term (beginning Jan. 20th and before Jan. 1, 2029) and the facility becomes operational before 2033.

This measure is seen as a major incentive to encourage new factory builds as the administration potentially wields tariffs to drive production back to the US.

Despite these incentives and existing tariffs, Indian pharmaceutical companies have not yet indicated any strong intention to increase their manufacturing capacities within the US. They cite the higher operational costs in the country compared to manufacturing in and exporting from India.

As the "Big Beautiful Tax Bill" moves to the Senate, industries in both the US and India will be closely watching its progression and any potential modifications, given the wide-ranging implications of its proposed measures.

Republicans hold a 53-47 majority in the Senate, and deliberations in the upper chamber are not anticipated until early June. The bill may undergo further amendments before a final vote.