Financial and Strategic Management

What is Corporate Taxation and the Impact on Corporate Financing?

Tax incentives in Northeast, Himalayan states in India

Businesses setting up, undertaking or manufacturing units anywhere in the notified regions of the northeast and Himalayan states of India are eligible for special tax benefits. The notified regions include northeastern states of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, and Tripura and Himalayan states of Jammu and Kashmir, Himachal Pradesh, and Uttarakhand.

A deduction of 100 percent of business profits for a period of 10 years is permitted for companies manufacturing, producing goods, providing eligible services, or undergoing substantial expansion between July 1, 2017, and March 31, 2027.

Further, a refund is available on excise duty payable on specified value addition for 10 consecutive years.

A refund is not available with respect to the manufacture or production of tobacco, pan masala (betel leaf), plastic carry bags of less than 20 microns, or goods produced by petroleum and gas refineries.

Service sectors eligible for the benefits include hotels (two stars and above), nursing homes (25 beds or more), old age homes, vocational training institutes for hotel management, catering and food crafts, entrepreneurship development, nursing and paramedical, civil aviation-related training, fashion design, and industrial training, IT-related training centers, IT hardware manufacturing units, and biotechnology.

Tax incentives for startups

To strengthen the startup ecosystem in the country and provide support, the Indian government offers several tax benefits to startups recognized under the National Startup Policy. Benefits include a tax holiday for a period of seven previous years, beginning from the year the startup is incorporated; exemption from tax on long-term capital gains; and approval to set-off carry forward losses and capital gains in case of a change in shareholding pattern.

As a form of further relief, the government also provides an exemption from angel investment tax, introduced in 2012. Under this, funds from angel investors or family and friends – domestic funds that are not registered as venture capital (VC) funds – or funds that are raised from VC firms set up for the very purpose of backing such ventures, will not be taxed on their investment into a startup firm.

An eligible startup under the National Startup Policy is a company that holds an eligible business certificate from the inter-ministerial board of certification under the Department of Industrial Policy and Promotion (DIPP). The company must be incorporated on or after April 1, 2016, but before April 1, 2021. Additionally, the total turnover of such a company must not exceed Rs 250 million (US$3.87 million) in any of the previous years beginning on or after April 1, 2016, and ending on March 31, 2022.

Tax incentives for new companies

For newly set-up Indian companies, the government has announced a discounted CIT rate of 25 percent – plus applicable surcharge and education cess – with effect from FY 2016-17.

The company may avail of the discounted rate, provided it fulfills the following conditions:

  • The company is registered and set up on or after March 1, 2016;
  • The company has not claimed a benefit for establishing its unit in an SEZ, benefit of accelerated depreciation, or benefit of additional depreciation, investment allowances, expenditure on scientific research, and any deduction in respect of certain income; and,
  • The company has not claimed a set-off of loss carried forward from any earlier assessment years, provided such loss is attributable to the deductions referred in the above condition.

About the author

Shreya Kushwaha

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