The interim Budget 2024 was announced by the Finance Minister Nirmala Sitharaman today (February 1), and in line with the parliamentary practice, no structural changes have been made in the corporate tax regime. The FM mentioned that in the full budget in July, the government will present a detailed roadmap for our pursuit of ‘Viksit Bharat’.
In her budget speech, the FM reiterated the measures taken by the government in the recent years to reduce and rationalise the tax rates during its tenure, wherein the corporate tax rate was decreased from 30% to 22% (excluding surcharge and cess) for existing domestic companies and to 15% (excluding surcharge and cess) for certain new manufacturing companies.
In the Interim Budget 2024, certain changes were expected with respect to the start-up sector and the manufacturing sector as under:
Extension of sunset provision in respect of specified Start-ups u/s 80-IAC from March 31, 2024 to March 31, 2025.
The FM has in the interim budget proposed to extend the time limit for incorporation of the eligible start-up units for income-tax exemption from March 31, 2024 to March 31, 2025.
As per the existing provisions of section 80-IAC of the Income-tax Act (‘IT Act’), an Undertaking being an eligible start-up which is engaged in the business of innovation, development or improvement of products or processes or services, or a scalable business model with a high potential of employment generation or wealth creation can claim tax deduction of an amount equal to 100% of the profits and gains derived from such business for 3 consecutive assessment years out of first 10 years.
The term “eligible start-up” is defined as a company or LLP and one of the conditions is that it should be incorporated between 1 April 2016 to 31 March 2024. The Finance Bill 2024 proposes to extend this period to 31 March 2025. This is a welcome measure considering the fact that India has become home to several startups due to thrust on technology, exponential economic growth and digital transformation engulfing the world. The number of recognised start-ups has increased from 452 in 2016 to more than 98,000 in 2023.
No extension was proposed for new manufacturing companies for which the deadline to commence manufacturing/production is March 31, 2024, u/s 115BAB
Section 115BAB was introduced in the Finance Act, 2019 to boost the manufacturing sector and attract new investments. As per section 115BAB of the IT Act, new domestic manufacturing companies can opt for concessional tax rate (i.e. effective tax rate @17.16%) provided that the company has been set-up and registered on or after the October 1, 2019, and has commenced manufacturing/ production of an article on or before the March 31, 2024.
In the interim budget, it was widely expected that to incentivise new manufacturing companies, and the timeline for setting up and commencement of manufacturing / production would be extended from March 31, 2024 to March 31, 2025. But it has not been extended u/s 115BAB for new manufacturing companies.
The current geo-political developments, India’s large domestic market and move towards “friend shoring” have resulted in several global companies considering India for manufacturing units. The manufacturing units require a long gestation period and as a result, such extension if considered will promote the ‘Make in India’ initiative for both foreign companies and domestic companies. We hope that considering the impetus on “make-in-India” and to make India a global production hub, the deadline may be extended either during the passage of Interim Budget 2024 in Parliament or in the post-election full budget by the newly elected government.
—The author, Dr. Suresh Surana, is Founder, RSM India, one of the leading provider of audit, tax and consulting services to entrepreneurial growth-focused organisations globally. The views expressed are personal.
(Edited by : C H Unnikrishnan)
First Published: Feb 1, 2024 5:25 PM IST
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