Government tweaks definition of manufacturing as it moves to lower corporate tax rates

The Narendra Modi government has moved to formalise lower corporate tax rates that had been implemented through an ordinance. The new bill, however, throws in some changes - the definition of manufacturing is changed to exclude specific activities including software development, production of cinematic films and mining and thus companies in these areas will never be eligible for lower rates.

The law also brings in a one-strike-and-you're-out clause. So the violation of even a single condition will mean a company can never avail a lower rate again. To discuss this CNBC-TV18 spoke to Hitesh Gajaria Partner & Co-Head - Tax at KPMG India.

Gajaria said, "This is a significant change. Besides software development and the production of cinema films, there is also mining, conversion of marble blocks into slabs, bottling of gas into cylinders and the printing of books, all of which have been excluded from the definition of manufacture or production of an article or thing."

He further added, "The government has in the new amendment act also reserved the power to specify any other industry which tomorrow they can say will be denied this concessional tax rate of 15 percent. Therefore even as this whole development clarifies the situation, it actually goes against some of the stances which the government had been taking earlier."