The modalities of the excise structure are still being worked out, government sources said. "The proposal may be included in the proposed automobile policy but nothing has been finalised because the draft note is not ready," a senior government official told The Financial Express. It is understood that the industry ministry held discussions with the finance ministry recently, but the latter's view on the issue is not known.

The proposal holds relevance as the heavy industry ministry is where the auto policy is being drafted, along with inputs from ministries including the ministries for finance, commerce and petroleum & natural gas.

At present, there is a uniform excise duty of 40 per cent which is levied on all passenger cars.

Abroad, for instance in Japan, 600 cc engine capacity cars are taxed at a lower rate as against the others. These small engine capacity cars are popular, specially amongst women, as they are easier to park. Others prefer them as they consume less fuel. Besides, the auto policy will also define foreign equity investment limits for new entrants. "There are divergent views on the issue; one school of thought says that since nearly all manufacturers have set up shop in the country, we do not need a high limit of investment," a top official said. "The other line of thinking is that we need a high investment limit since the passenger car market is already crowded," he added. Import tariffs to be levied on completely-built units (CBUs), completely knocked down (CKD) and semi-knocked kits and components are also being discussed. The government is also planning to include a proposal under which auto companies will balance royalty payments to their parent with export earnings. A clause may be introduced whereby automajors will have to earn through exports what goes out as royalty payment to their parent companies. It is also understood that second-hand cars may be allowed with high import tariffs along with environmental and safety standards.

However, a final decision on the matter has not been taken as yet. The automobile policy has been delayed though heavy industry minister, Manohar Joshi had earlier said that the policy would be announced in October.