Manufacturing companies face uncertainty as Budget mentions no extension of beneficial tax rate

Budget 2024 allocates over Rs. 6000 crore to law ministry

Several manufacturing companies will face uncertainty following the interim Union Budget 2024 as the government has not specified any provision to extend the special tax rate of 15 percent applicable to new manufacturing units that begin production before March 31, 2024.

This could potentially increase the tax outgo of some manufacturing by 7 percent, say tax experts.

According to tax experts, the budget documents are silent about extending the applicability of the Section 115BAB of the Income Tax Act. The section provides a beneficial tax rate of 15 percent to companies incorporated post 2019 and who begin their manufacturing before March 31, 2024.

However, many companies were faced with delays in beginning production due to Covid-19 pandemic and aftermath and hence were hoping for an extension, say tax experts. The tax rate applicable for normal companies is 22 percent.

Also Read: Nirmala Sitharaman budget speech live update

Related stories

Pavan Burugula

Assistant Editor|Moneycontrol

“While extension of lower tax rate for manufacturing was expected, the budget does not spell such extension. This may impact plans for companies looking for India manufacturing at least till such announcement is made in July’s full budget,” said Neha Aggarwal Jain, partner tax and regulatory services, Deloitte India.

To be sure, the special tax rate applies only to manufacturing companies and was introduced with an aim to usher in greenfield manufacturing in India. The government had introduced these provisions in 2019.

Experts say, in case of an oversight, the government can introduce the provision through an addendum to the Finance Bill.

“The sunset clause of new manufacturing facility has not been extended. This has been a long pending demand from the industry. This extension would have complimented the government PLI scheme as well.” said Amit Singhania, Founder, Areete Law Offices.

However, companies in final stages of commencing manufacturing can still be eligible to avail the beneficial tax rate if they are able to commence the production in the next two months.

The Budget 2022-23 presented on February 1 has proposed that the concessional 15 per cent corporate tax rate would be available for one more year till March 2024 for newly incorporated manufacturing units.