The intention behind introducing a concessional tax regime for manufacturing companies was to promote investment, job creation, and an atma nirbhar Bharat. However, the COVID-19 pandemic has caused delays in the formation/registration of new domestic enterprises, as well as the start of manufacturing or production by those companies.

To give relief, the Finance Bill, 2022 (“Bill”) proposes an amendment to extend the last date for commencement of manufacturing or production under Section 115 BAB by one year, from March 31,2023 to March 31, 2024.

Continued support to start-ups

The existing provisions of section 80-IAC of the IT Act, provide for a deduction of 100 per cent of profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years, beginning with the year of incorporation, at the taxpayer’s option, subject to satisfaction of prescribed conditions. One of the such conditions was that the start-up entity should be incorporated on or after 01 April 2016 but before 01 April 2022.

Recognizing the pivotal role that the start-up ecosystem plays in India’s growth story, Governmenthas proposed to extend the sunset clause by one more year from 01 April 2022 to 01 April 2023.

Further the proposed surcharge cap of 15 per cent now restricts long term capital gains tax in the hands of individuals at 23.92 per cent from the erstwhile peak rate of 28.50 per cent. This should give founders and investors a reason to rejoice.

Further benefits to IFSC

IFSC aims to provide an easy access to global investors for establishing businesses in banking, insurance, capital market and asset and fund management. In addition to being a global hub for international transactions in finance and technology, IFSC in Gujarat International Fin-Tec City (“GIFT City”) will also act as a bridge between local businesses, international investors and technology leaders. Continuing the trend from previous years, this Budget proposes to extend the range of tax incentives and holidays available to IFSCs as follows:

• Tax exemption is proposed to be extended to a non-resident on income arising from transfer of offshore derivative instruments or over-the-counter derivatives entered into with an Offshore Banking Unit of an IFSC.
• Tax exemption is proposed to be extended to royalty and interest earned by a non-resident from lease of a ship to a unit of an IFSC (that has commenced its operations before 31 March2024).
• Tax exemption for non-residents on income earned from portfolio of securities or financial products or funds, managed by any portfolio manager in an account maintained with an Offshore Banking Unit in an IFSC, to the extent such income accrues outside India.
• Exemption from ‘angel tax’ to shares issuances to Category I and Category II Alternative Investment Fund regulated under the International Financial Services Centres Authority Act, 2019.
• Income from the transfer of ships leased by a unit of the IFSC will be eligible for tax holiday under section 80LA of the IT Act, provided that the unit has commenced operations before the 31 March 2024.

In contrast to any big-bang announcements, the Budget 2022 stands testimony to the Fovernment’s continued support and encouragement to certain identified sectors. Like the proverb “Rome wasn’t built in a day”, the government seems committed to its long-term vision of seeing India as a manufacturing major, as the world’s next Silicon Valley and as a global financial and IT services hub.

This article was originally published in The Economic Times on 2 February 2022 Co-written by: Gouri Puri, Partner; Nimish Malpani, Associate. Click here for original article

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