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India Inc is eagerly awaiting clarity on an extension to the sunset period for availing the concessional tax rate of 15 per cent for companies setting up greenfield manufacturing units.
Several industry bodies have petitioned the Finance Ministry for a longer three-year extension to the concessional tax regime, which ends on March 31 this year, along with clarity on a number of ambiguities plaguing the scheme, said people in the know. It is unclear if clarity will be provided in the interim Budget to be presented next month.
“The scheme has been popular, with a number of corporates setting up new capacities or subsidiaries to avail of the concessional tax rates,” said Vaibhav Gupta, Partner, Dhruva Advisors.
A one-year extension is inadequate given two years of Covid and the capital intensive nature of setting up a manufacturing plant, said experts. | Photo Credit: PRABHU M
A one-year extension is inadequate given two years of Covid and the capital intensive nature of setting up a manufacturing plant, said experts.
“There are many foreign multinationals looking to set up operations in India and a suitable extension will incentivise them further,” said Sandeep Sehgal, Partner, AKM Global.
Positive impact
Despite the concessional tax rates – 15 per cent for new manufacturing companies and 22 per cent for all other corporates – the corporate income tax collections in January saw a net growth of 12.37 per cent year-on-year.
“The concessional or lower tax rates have positively impacted the revenues of the government, given a boost to the industrial and manufacturing sector, especially MSMEs, and complement well with the other schemes and initiatives launched by the Centre and States,” said Yashesh Ashar, Partner, Illume Advisory.
Ashar believes that the sunset period should be extended for at least three years to enable the business community to plan better.
“All companies, irrespective of their date of incorporation, should be made eligible for participation subject to criteria such as increase in existing production capacity or investment in new manufacturing facility. Segments allied to manufacturing such as simulation services and testing services should be brought under the ambit,” Ashar said.
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At present, companies have to meet certain tests to qualify for the lower tax rate. For example, a company can use old plant and machinery, only if its value does not exceed 20 per cent of the total value of the plant and machinery used by it.
A number of aspects require clarity. For instance, will the provisions get extended to any more capacities that are added subsequently and will the benefit be available on setting up of plants for manufacturing of a different product?
As part of the tax return filing, companies are required to mention the date of commencement of production, which in most cases wouldn’t have happened by the time the first income tax return is filed, said experts.
The law prescribes a 22 per cent tax rate on incomes generated in the same company which are not incidental to or ancillary to the manufacturing business.
“This was meant to cover incomes in the nature of interest, etc earned by the company. Will the same rate will be available to any other income stream such as trading sales or AMC incomes earned by the company? Clarity on this will be helpful,” said Gupta.
Pointers
Time for intervention
In 2019, a tax rate of 15 per cent (17.16 per cent after surcharge and cess) was announced under Section 115BAB for new companies set up for manufacturing
The deadline to avail of lower rates was March 31, 2023 and later extended by a year
Industry wants the sunset period to be extended by another three years
Corporate income tax collections in January saw a net growth of 12.37 per cent y-o-y
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