In a move aimed at further incentivising fresh investments in the manufacturing sector and promoting ease of compliance, the Indian government is reportedly considering extending the lower tax rate of 15 per cent for companies establishing new manufacturing units.
As per reports, this extension is likely to be announced in the upcoming Interim Budget scheduled for 1 February, continuing the favourable tax rate until 31 March, 2025.
The current tax provision, offering a reduced rate of 15 per cent, has been instrumental in attracting major players in the industry. Notably, giants like Apple and Foxconn have already capitalised on this advantageous tax rate by establishing manufacturing bases in India. The government is keen on sustaining this momentum to bolster the manufacturing sector and attract further investments.
A top government source emphasised the significance of the lower tax rate, stating, “India offers a tempting tax rate of 15 per cent for new manufacturing units. To further boost the sector, the benefit of lower tax needs to be extended.” The proposed extension aligns with the government’s strategy to position India as a viable alternative to China for global firms, thereby attracting more manufacturing companies to set up operations in the country.
In 2019, the government introduced the provision, stating that any new domestic company incorporated on or after 1 October 2019, making fresh investments in the manufacturing sector, could opt for a 15 per cent corporate tax rate if they commenced production on or before 31 March 2023.
The Budget presented on 1 February 2023, extended this concessional tax rate for new manufacturing units by one more year until March 2024.
Industry representatives express optimism about the potential extension but hope for a longer timeframe. An industry representative, speaking on the condition of anonymity, stated, “The question is not whether or not the government will extend the deadline, the question is whether the extension would be for a year or more. We would want the government to extend the deadline for three years instead of one.”
As the manufacturing sector eagerly awaits the announcement in the upcoming Interim Budget, the potential extension of the lower tax rate signifies the government’s commitment to fostering a favourable environment for new investments and industry growth.
