No gains for recycled investments in manufacturing

PANAJI: The government has taken adequate care to ensure that the proposed 15% tax rate is available only to new investment in manufacturing, putting in safeguards so that old investment is not recycled or repackaged to claim the benefit.

The fine print of the amendment to the income-tax law shows that entities formed by splitting up or reconstruction of a business already in existence shall not be eligible under the new regime. Exception would be made in situations of natural or manmade calamity, riot or fire wherein an entity needs to be re-established, reconstructed or revived on or after October 1.

Finance minister Nirmala Sitharaman cut corporate tax rate to 15% for new manufacturing outfits that are set up on or after October 1, 2019 and commence manufacturing before March 31, 2023.


The move is largely aimed at attracting manufacturing companies that are looking to diversify their production out of China. With this new scheme, the country has now become among the lowest tax jurisdictions in South and Southeast Asia.

Under the proposed rules, investors will not be able to use more than 20% machinery or plant previously used for any purpose in the new investment.

However, used machinery or plant brought from overseas shall not be treated as old. But companies should not have claimed any deduction on account of depreciation in respect of such machinery. To get the tax benefit, they should not also use any building previously used as a hotel or convention centre.

“…in order to curb any misuse of the beneficial tax rate by the existing manufacturing companies, appropriate safeguards have been put in place. These conditions will make sure that only the newly set-up companies can avail (of) the relaxed rate of corporate tax,” said Rakesh Nangia, managing partner at Nangia Advisors (Andersen Global).