Encouraging the private sector to expedite new investment in manufacturing, revenue secretary Tarun Bajaj on Friday clarified that there is a sunset clause on the special concessional tax rate of 15% on companies setting up greenfield manufacturing units.
Owing to the impact of the pandemic, the Finance Bill, 2022 has extended the last date for commencement of manufacturing or production under section 115AB from March 2023 to March 2024. It may be recalled that in 2019, finance minister Nirmala Sitharaman announced reduction in corporate tax rates to pull the economy out of the slowdown.
Subsequent to the announcement, the 115BAB of the Income Tax Act provided for an option of concessional rate of taxation at 15% for greenfield domestic manufacturing companies was introduced. The condition being, commencement of manufacturing before March, 2023. As a comfort amid the pandemic, a cushion of one more year has been provided to avail the concessional rate.
Clarifying to a question during a post budget interaction organised by Assocham whether the concessional rate is a permanent or a temporary feature, Bajaj said, “The message is very clear. We would like you to set up your factories and manufacturing units fast. The time limit has been extended by one more year. There will be a sunset clause and then you will move to 22%, which is what the corporate tax rate is.”
“This a special dispensation for manufacturing units to come up and set up their factories sooner than later,” Bajaj added.
Bajaj was also optimistic about the tax buoyancy as the economy is on the path of recovery. ''Our tax to GDP ratio which had gone below 10% in the year we had brought down the corporate tax, but it has now started coming up. I won’t be surprised if in the current year, the tax to GDP ratio may be the highest ever for direct and indirect taxes taken together,'' said Bajaj.
Bajaj also said the new corporate tax regime is settling down as more and more companies are exhausting their exemptions and moving towards the lower rate of 22%. ''My own assessment is, as companies exhaust their exemptions, they would start moving to the new tax regime because there is a big difference between 30 and 22% the corporate India would be benefited,'' he added.
