Concessional corporate tax rate of 15% for eligible ‘start-ups’ has not been extended beyond March 31, 2024 Some industry experts are of the opinion that this non-extension might impact the government's Make In India initiative
The government has not extended the deadline of the concessional tax rate of 15% applicable on new manufacturing start-up companies. Presently the concessional tax rate is applicable up to March 31, 2024 for new manufacturing companies."It was highly expected that this date would be extended in the Interim Budget. The Finance Bill, 2024 does not extend this date - this could be a big concern for the Make In India initiative and governments aim to make India a manufacturing hub. All eyes are now on the full Union Budget 2024 likely to be announced in July 2024," says Lokesh Shah, Partner, IndusLaw, a law firm.
Which manufacturing companies will get concessional tax rate up to March 31, 2024
It must be noted that not all companies are eligible for a concessional tax rate of 15%. According to section 115 BAB of the Income-tax Act, 1961 the eligibility conditions are:The company has been set-up and registered on or after October 1, 2019 and has commenced manufacturing or production of an article or thing on or before March 31, 2024, andThe business is not formed by splitting up, or the reconstruction, of a business already in existence, andDoes not use any machinery or plant previously used for any purpose .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:10px;font-weight:500;line-height:18px;} #sr_widget .sr_desc{margin:0 auto 0;} #sr_widget .sr_desc{color: #024d99;}
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"As per section 115BAB, new domestic manufacturing companies can opt for concessional tax rate of 15% (effective tax rate is 17.16%) provided that the company has been set-up and registered on or after the October 1, 2019, and has commenced manufacturing/ production of an article or thing on or before the March 31, 2024," says Dr Suresh Surana, founder, RSM India, a tax and business consulting group
Impact of non-extension of concessional tax rate
Some Industry experts opine that the impact of non-extension would be minimal.According to Aravind Srivatsan, Tax Leader & Partner, Nangia Andersen LLP, a tax and business consultancy firm, "The provision to provide a competitive corporate tax rate of 15 percent for new manufacturing companies was seen as a move to provide room for Covid related delays in commencing the manufacturing activity."
Srivatsan opines that the data of listed Indian enterprises which included several MNC across FMCG, auto and pharma sectors, others show that many corporates have planned their expansion, utilising the benefit of this provision while a few multinational companies (MNC) waiting to enter India have missed the chance by the government sealing the expiry of this provision.
"The budget proposals seem to suggest that lower tax rates will not be a factor for driving India's investment philosophy and policy makers would not continue with extensions of concessions and take a hard stop believing their faith in India as a manufacturing destination guided by other transformation measures on the ground," according to Srivatsan.
Anand Bathiya, vice president, Bombay Chartered Accountant Society (BCAS) opines that although it was expected from the government to extend the concessional tax rate for at least one year beyond March 31, 2024 but it would not impact much.
"The concessional tax regime was an important variable in the decision-making framework towards new manufacturing units under the Make in India initiative. The extension was granted to complete the projects by March 31, 2024, and manufacturing units being aware, would have planned about this much before. At best there may be some rush to completion of manufacturing," says Bathiya from BCAS.
Some experts opine that the concessional tax rate would have a big impact hence it must be extended. "Government not extending the concessional tax rate for new manufacturing units beyond March 31, 2024 to avail benefit of lower corporate tax will be an impediment in the government's flagship 'Make in India' program. The lower corporate tax regime acted as a catalyst for attracting investment in new manufacturing facilities. Government should consider extending the date in the full fledged budget of July 2024," says Rohit Jain, Partner, Economic Laws Practice, a law firm.
"Non-extension of the scheme is contrary to the make in India initiative that Government is promoting at all forums. However, considering it is an interim budget and main budget is likely to be presented once the new Government is elected. Further, where this scheme is given an extended lifeline in the main budget, the applicability of it from April, 2024 can make this gap go vanished and companies that are expected to have set up in this interim period will be at par for availing such benefit," says Saurrav Sood, Practice Leader, International Tax and Transfer Pricing, SW India.
However, there still might be some hope of an extension. According to Surana, "We hope that considering the impetus on 'Make-In-India' and to make India a global production hub, the deadline may be extended either during the passage of Interim Budget 2024 in Parliament or in the post-election full budget by the newly elected government."
This story originally appeared on: India Times - Author:Faqs of Insurances
