The Indian automobile industry is staring at a hit of about ₹25,000 crore on bottom line for FY26 with the Environment Protection (End-of-Life Vehicles) Rules 2025 triggering an accounting standard clause that requires automakers to make budgetary provision for environmental compensation for vehicles sold in the past.

According to industry executives, an "innocuous looking" clause in the Environment Protection (End-of-Life Vehicle) Rules, 2025 notified by Ministry of Environment, Forest and Climate Change, in January 2025 has spooked automakers after their auditors flagged the magnitude of its ramifications.

The "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..."

"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," an industry executive on the condition of anonymity said.

Another industry official said, "Due to the 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 profits." It is understood that industry body Society of Indian Automobile Industry (SIAM) had also taken up the matter with the ministry, highlighting the financial impact on the bottom line of automakers due to the environmental compensation 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, seen by PTI.

The auto industry body 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 in its amendment notification to the Environment Protection (End-of-Life Vehicle) Rules, 2025 on March 27, 2026 did not alter the specific clause.

"Once the provision is realised in the accounting books, it would significantly reduce the profits of that year for the entire auto industry," another industry executive said.

What is the overall industry impact?

As per industry estimates, the overall industry impact on four-wheeler makers due to the rule is about ₹14,623 crore and for two and three-wheeler makers the total impact is estimated to be ₹9,650 crore for FY26.

This policy makes a huge dent on 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, said one of the executives