Cars, SUVs and two-wheelers will become expensive from January 1 with the government deciding not to extend the reduced excise duty rates provided to the sector.
"The government is not extending the excise duty concessions on the auto sector," a senior finance ministry official said.
In order to boost the auto sector, the previous UPA government had cut excise duty on cars, SUVs and two-wheelers in the interim Budget in February.
Excise duty was reduced to 24 per cent from 30 per cent in the case of SUVs, 20 per cent for mid-sized car from 24 per cent and 24 per cent for large cars from 27 per cent.
In June, the new government led by Narendra Modi extended the excise duty concession by six months to December 31, which is not being further extended.
After two successive years of sales slump, the auto industry had shown growth of 10.01 per cent in April-November period this fiscal at 1.33 crore units as against 1.21 crore units in the year-ago period.
In November, car sales in India rose by 9.5 per cent in November riding on continued relief in excise duty and lower fuel prices, after declining for two months in a row.
Domestic car sales in November stood at 1,56,445 units, up 9.52 per cent compared to 1,42,849 units in the same month of 2013, according to the data released by Society of Indian Automobile Manufacturers (SIAM).
Car makers had been asking the government to extend excise duty relief, saying removal of this incentive could push the industry into a negative territory.
Maruti Suzuki India Chairman R C Bhargava had said if the incentive is not continued, automobile prices would go up further in the next year.
"It could derail the auto industry. If it lapses, then prices go up by 4 per cent and we will have to pass on the burden to the customer," he had said.