Government Reviewing Reintroduction of 15% Tax for New Units in FY26 Budget
By: Admin|July 30, 2024|Categories: Income Tax News|News
The government is currently reviewing the outcomes of the 15% concessional corporate tax rate scheme, which concluded on March 31. Official sources have indicated that a decision on its reintroduction will be based on its effectiveness in promoting private investments, a key focus area for the Centre.
Background and Introduction of the Scheme
Introduced via ordinance in September 2019, the concessional corporate tax rate of 15% was aimed at boosting manufacturing activities in India. This scheme specifically targeted domestic manufacturing companies incorporated post October 1, 2019, and commencing production before March 31, 2024. It was a strategic move to incentivize investments in manufacturing and enhance India’s competitiveness globally.
Initially, the benefit was extended until March 31, 2023, but was later extended for an additional year due to pandemic-induced delays, ending finally on March 31, 2024. The scheme garnered significant interest, with a notable increase in the number of companies opting for the concessional tax rate year after year.
Current Status and Government’s Internal Review
As of now, the government is conducting an internal review to assess the impact of the scheme on the manufacturing sector and overall economic growth. The review includes analyzing how companies availing the 15% tax rate have performed and contributed to manufacturing activities in the country.
“If we find that the scheme has achieved its intended objectives, there is a possibility of reintroducing it, possibly in the upcoming Budget,” remarked an official familiar with the matter.
Impact and Benefits of the Concessional Tax Rate
The scheme’s impact on tax collections and manufacturing output has been significant, as evidenced by the increase in the number of companies opting for the lower tax rate. Data from the Receipt Budget for FY25 highlights a substantial rise in income taxed under the scheme, indicating its positive reception among eligible corporations.
In FY20, 1,244 companies benefited from the concessional tax rate, a number that doubled to 3,508 in FY21. This surge underscores the perceived benefits and attractiveness of the scheme to new manufacturing entities seeking to establish and grow their operations in India.
Expert Opinions and Industry Perspectives
Industry experts view the concessional tax regime as instrumental in positioning India as a preferred destination for manufacturing investments. By reducing the corporate tax burden, the government aimed to encourage more companies to establish manufacturing units domestically, thereby reducing dependency on imports and enhancing local production capabilities.
“The scheme aligns perfectly with the ‘Make in India’ initiative, emphasizing self-sufficiency and economic resilience,” noted one expert. “Reintroducing such a scheme could further bolster India’s competitiveness in the global manufacturing landscape.”
Tax Policy Reforms and Future Outlook
Looking ahead, the government’s review of the Income Tax Act, 1961, over the next six months will play a crucial role in determining future tax policies and reforms. This comprehensive review aims to streamline tax regulations, enhance compliance, and create a more conducive environment for investments across sectors.
The recent Budget for FY25, presented in July, also announced adjustments in corporate tax rates for foreign-owned companies, aimed at attracting more foreign investments into the country. These measures reflect the government’s proactive stance in creating a favorable tax regime to stimulate economic growth and development.
Conclusion
The potential reintroduction of the 15% concessional corporate tax rate scheme underscores the government’s commitment to fostering a conducive business environment and promoting investments in manufacturing. As the review progresses, stakeholders are advised to stay informed about developments that could impact their tax planning and business strategies.
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