Indian companies seek re-introduction of tax incentives for setting up new manufacturing units in FY27 Budget

Originally, the special rate was applicable till March 31,2023.

Indian companies are seeking re-introduction of the concessional corporate tax rate for companies to scale up their manufacturing facilities in the upcoming budget. Until March 31, 2024, a special section under Section 114BAB allowed domestic manufacturing companies to avail a 15% tax rate. However, last year, the government decided to withdraw the tax benefit. The companies want this rate to be re-introduced.

The development assumes relevance amidst the ongoing global debate around supply chains and tariffs. Many experts say India should shore up its manufacturing prowess further.  Generally, Indian corporates are subject to a 22% concessional tax rate if they do not claim any other tax breaks.

“The 15% lower rate for manufacturing was meant to spur new investment into manufacturing but has since sunsetted in Mar 24. With the latest issues around global supply chain and tariffs accelerating the relocation of manufacturing hubs the lower rate accentuates the interest of MNEs in locating to India. Instead of just looking at the lower corporate tax collection the government should also consider the trickle-down benefits from jobs and vendors benefiting from a large-scale manufacturing build up in India,” said Rohinton Sidhwa, Partner, Deloitte India.

This special tax incentive of 15% was introduced in 2019. Experts said this policy increased India’s attraction as a destination for manufacturing investments.

“The concessional tax rate played a crucial role in supporting the government’s ‘Make in India’ initiative, encouraging both domestic and foreign investors to set up new manufacturing facilities. It also contributed to job creation and technology transfer, with the simplicity and predictability of the regime reducing tax disputes and administrative burdens,” said Hitesh Sawhney, partner, Price Waterhouse & Co LLP.

“From a policy perspective, targeted and time-bound tax incentives like Section 115BAB are essential tools for attracting greenfield investments and fostering economic growth. However, such measures must be carefully designed to align with broader industrial objectives, while balancing fiscal prudence,“ Sawhney added.

Originally, the special rate was applicable till March 31,2023. However, the central government extended the scheme for one more year keeping in mind the impact of Covid-19 on setting up new manufacturing plants.

“In order to provide relief to companies which could not commence production or manufacturing within the slated time frame, there was an extension given for commencement of manufacturing or production up till March 31, 2024. Given that we are past the COVID era, and this was an interim measure, this seems to be the reason why the government has not looked at extending this any further,” said Parul Jain , Lead - International Tax & Investment Funds, Nishith Desai Associates.