A further extension of the time-line for the concessional 15% corporate tax rate for new domestic manufacturing companies is likely to be announced in the Budget, as part of the government’s efforts to attract investments and aid job creation, according to sources privy to the matter. The extension could be at least for a year.
The current deadline for new manufacturing units to start operations in order to avail the concessional tax rate is March 31, 2024.
However, a number of companies have been keen on new investments after the ebbing of the pandemic. Experts point out that it takes at least 2-3 years to start a new facility and the current deadline, which is just a year away, may not be feasible for many of the investors, including those which have already begun work on the projects.
An extension to the deadline has been a key request of industry.
With effect from 2019-20, “domestic companies” have the option to pay income-tax at the rate of 22% (25.17% including surcharge and cess) subject to condition that they will not avail any exemption/incentives. In September 2019, the government had announced that any new domestic company incorporated on or after October 1, 2019, making fresh investments in manufacturing, would have the choice to pay corporate income tax at 15% (17.01% including surcharge and cess) if they do not avail any exemption or incentive and commence their production on or before March 31, 2023. Finance minister Nirmala Sitharaman had extended this sunset date by a year in the Budget 2022-23, citing the pandemic.
Experts noted that with China’s supply chain disruption due to the Covid-19, there has been a lot of interest from companies in setting up plants in India, especially in the last 3-4 months. Along with the PLI scheme, this would make up an attractive offer for potential investors.
Hitesh Sawhney, Partner, Price Waterhouse & Co said, “The momentum of shifting the supply chain has picked up from last year and a lot of multinational companies are exploring this. The PLI and the concessional corporate tax rate can be a comprehensive package for such companies. While the concessional rate was extended by a year due to Covid, in my opinion, it should be extended by another 3-5 years. This would give any manufacturing company sufficient time to set up a plant and start operations.”
Samir Kanabar, Partner, EY India also noted that to promote manufacturing as part of Amrit Kaal and AtmaNirbhar Bharat, the government may extend the concessional tax regime of 15% by another year to 2025.
“This will help companies plan better as it takes 2-3 years to make a plant fully operational. It will also encourage new age technology like semiconductors, chips and batteries. Alternatively, granting investment-linked tax deduction to such new age technology manufacturing will attract capex for this sector,” he said.