How the Extended Deadline for the Corporate Tax Rate Cut Benefits Manufacturing Companies


On February 1, 2022, Union Finance Minister Nirmala Sitharaman announced several initiatives in her paperless budget, which if implemented in the true spirit, should help the government achieve its objective and commitment to making India a global manufacturing hub, as envisaged by the Prime Minister.

The Government, through the Revenue Act (Amendment) Order 2019, on 12 December 2019, provided relief by introducing a new section, 115BAB, of the Income Tax Act 1961 ( the “Act”), which provided for a tax rate of 15 percent

The purpose of enacting Section 115BAB was to attract investment, create jobs and stimulate overall economic growth. However, the cumulative impact of the COVID-19 pandemic has caused some delays in the creation/registration of new domestic companies, as well as in the start of manufacturing or production by these companies, if they have been created. and recorded.

To provide relief to these businesses, the Minister of Finance, as part of Budget 2022, has proposed to amend Section 115BAB to provide the benefit by extending the time for commencement of manufacture or production of an item , from March 31, 2023 to March 31, 2024.

This amendment will come into force on April 1, 2022 and will therefore apply to the 2022-23 tax year and subsequent tax years. Section 115BAB of the Income Tax Act provides a preferential tax rate option at the rate of 15 percent for new domestic manufacturing enterprises provided that they receive no specified inducement or deduction and meet certain other prescribed conditions.

Subsection (2) of Section 115BAB of the Act contains the conditions that these companies must meet:

–Clause (a) of said paragraph (2) provides that the new domestic manufacturing company shall be formed and registered on or after October 1, 2019 and shall commence manufacture or production of an article or thing on or before March 31, 2023, which is now amended to March 31, 2024.

–The creation of a new national manufacturing enterprise should not result from the splitting or reconstruction of an already existing enterprise.

–This new domestic manufacturing company shall not use any machinery or facilities previously used in India for any purpose. In addition, the company may use old installations and machines, the value of which does not exceed 20% of the total value of the installations and machines used by the company.

–The new domestic manufacturing company must not use any building previously used as a hotel or convention center

– The new domestic manufacturing enterprise must not be engaged in any activity other than the manufacture or production of an article or thing and research in connection with, or the distribution of such article or thing manufactured or produced by her.

However, a company wishing to opt for the beneficial sections would not be entitled to the various tax exemptions/deductions available under the law, as prescribed by Section 115BAB being:

–tax exemption/deduction available under Sections 10AA (tax exemption for SEZ units),

–additional depreciation within the meaning of Article 32(1)(iia),

–additional deduction for investment in machinery under article 32AD,

–tea/coffee/rubber development account deduction available under section 33AB,

–deduction under article 33ABA (site restoration fund),

– weighted deduction for scientific research expenses 35(1)(ii) or (iia) or (iii), 35(2AA), 35(2AB)

– capital expenditure for a business determined under section 35AD,

–expenditures for agricultural extension projects under section 35CCC or deduction under 35CCD for skills development project or

– any other deduction provided for in Chapter VI-A under the heading “C – deductions with respect to certain income” other than Article 80JJAA of the Law

In addition, the Company will not be permitted to set off losses carried forward from previous years if such losses are attributable to any of the deduction/exemption provisions referred to in the paragraph above and the MAT provisions under Section 115JB do not not apply to companies opting for 115BAB profiles

As the article is newly introduced, its provisions have not been judicially tested so far.

This amendment brought long-awaited relief for companies that had planned to start production but encountered delays and disruptions as well as for companies that had started the process but were unable to make significant progress due to the pandemic. The amendment also provides additional time for many other taxpayers to onboard and benefit from this incentive.

Corporate tax rates are key to attracting foreign investment to any country. Countries around the world have reduced corporate tax rates in recent years to encourage investment, consumption and participation in the labor market.

India competes with countries like Singapore (17%), Ireland (12.5%), UK (19%), USA (21%), Vietnam (20%) , Thailand (20%), Taiwan (20%). percent), and others with a new corporate tax rate of 15 percent, respectively. Lowering the business tax rate is part of the global trend and is a well-known strategy for attracting investment.

The manufacturing sector plays a central role in the growth and development of an economy. By incentivizing the establishment of new domestic manufacturing entities, India is trying to achieve the dual objectives, one being to encourage domestic players to set up manufacturing facilities, thus realizing the vision of “Atma Nirbhar Bharat” as well as to attract investment and encourage international players to set up manufacturing facilities in India to achieve the goal of making India a global manufacturing hub.

Author Vijay Dhingra is Partner, Parul Shah is Director and Nikhil Sangtani is Deputy Director at Deloitte Haskins and Sells LLP. The opinions expressed are personal.


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