India surprised the manufacturing industry by not extending concessional tax rate to startups

Jingyue Hsiao, DIGITIMES Asia, Taipei 0

Finance Minister of India Nirmala Sitharaman. Credit: AFP

According to the latest Interim Budget, India did not extend the concessional tax for manufacturing startups as the industry had previously expected, a decision not beneficial to the make-in-India initiative that Narendra Modi had been proposing.

The Finance Ministry of India unveiled the Interim Budget for fiscal 2025 (April 2024 to March 2025), which remained a tax rate of 22% for existing domestic companies and a concessional rate of 15% for certain new manufacturing companies.

According to a pre-budget memorandum circulated around the net, India is expected to extend the concessional rate for manufacturing startups beyond March 2024 to March 2026.

MoneyControl quoted Deloitte India saying that while the extension of a lower tax rate for manufacturing was expected, the budget does not spell such an extension, which may impact manufacturing plans for companies looking to invest in manufacturing in India. India will unveil the full Union Budget in July 2024.

According to the Income-tax Act 1961 of India, manufacturers set up and registered on or after October 1, 2019, and commenced manufacturing or production before March 31, 2024, can avail of the concessional tax of 15%. The tax rate was provided to promote "Make in India," an initiative Modi had proposed since he took office.

Rohit Jain, the partner of India-based law firm Economic Laws Practice, told the Economic Times that the decision might impede the government's flagship "Make in India" program as the lower corporate tax regime was a catalyst for attracting investment in new manufacturing facilities.

Some believe the impact would be limited. Aravind Srivatsan, tax leader and partner at Nangia Andersen LLP, said that the lower tax rate of 15% for manufacturing startups was seen as a move to provide room for COVID-related delays in commencing the manufacturing activity.

Meanwhile, in the Interim Budget, the Finance Ministry of India increased the budget allocation for the Production Linked Incentive (PLI) schemes for 14 sectors from INR46.45 billion in fiscal 2024 to INR62 billion in fiscal 2025.