Tax incentives in India - EY - United States

1 Tax incentives in IndiaAugust 2014 For discussion purpose only1 Overview of tax incentives2 Location-based tax incentives3 Special zones incentives4 Activity-based incentives5 Industry-specific incentives6 Our value proposition7 Annexure8 GlossaryContentsOverview of taxincentivesOverview of tax incentives In order to attract new investments, develop infrastructure and promote export/ industries, India offersvarious incentives such as tax holidays, investment allowances, tax credits, rebates and so on Prior to expansion/ new investments, companies should evaluate and avail of available incentives toobtain tax synergies.

2 Some of the incentives could be available to existing as well as new businessesTaxincentives Tax holiday in specified locations, viz., theNortheastern regions of India State-level incentivesLocation based Benefit for R&D expenditure Employment of new workmen SEZ developer Business of collecting and processing bio-degradable waste Project Import Scheme for initial set-up orsubstantial expansion of specified projectsExport linked Export from SEZ units Various indirect tax benefits/refunds, etcActivity based Infrastructure and power facilities Oil and gas Cold chain and warehousing Hospitals Fertilizer production Affordable housing project schemes Hospitality and tourism.

3 EtcIndustry specificLocation-basedincentivesSpecific incentives state levelGreenfield manufacturing projects, substantial expansion and diversificationLand related Stamp duty waiver/concessions Other concessions on registration charges, propertytaxes, conversion charges, etc Single-window clearanceInfrastructure Electricity duty exemption Rebates in tariffs for electricity/water/gas Subsidies on clean manufacturing technology, pollutioncontrol, etcCapital investment and employment VAT/CST-linked subsidies/soft loan/exemption Exemption or refund of entry taxes Subsidies linked to social security contributions (PF/ESI) Other subsidies (technology, transport, etc)

4 Special incentive package for mega projectsBenefits depend on the sizeof eligible investment,location, employmentgeneration, nature ofproducts, etcCustomized incentives formega projectsorinvestment in backwardareas based on negotiationswith relevant stategovernmentsStates such asMaharashtra, Rajasthan,Tamil Nadu and WestBengal provide variousincentivesIncentives vary across States depending on their respective industrial policiesUndertaking/Manufacturing facility in Northeast IndiaLocation Tax benefits are available forsetting up undertaking/manufacturing facilities( units ) in theNortheastern statesof India No area restrictions are applicable in these States , , the unit can be set up anywhere in thenotified regions The notified States are Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland,Sikkim and TripuraEligibility Manufactures or producers of any article or thing or carrying out any eligible business (such ashotels in the two-star category or above, bio-technology, manufacturing of information technologyhardware) The following products are not eligible for deduction in respect of direct tax incentives .

5 Manufacturing activity must be initiated before1 April 2017 The key incentives are: Deduction of100% of profitsof the qualifying unit for 10consecutive years Deduction restricted to profits of the unit on a stand-alone basis Refund on excise duty payable on specified value addition for 10 consecutive years Tobacco and manufactured tobacco products Pan masala Plastic carry bags Goods produced by petroleum oil or gas refineriesSpecial zonesincentivesSEZ unit Must be engaged in the export of goods and services from 1 April2005 onward Must not be formed by splitting up or reconstructing an existingbusiness Not to be formed by transferring a previously owned plant

6 Andmachinery to the SEZ unitSEZ developers Should be involved in the development, operation andmaintenance of SEZs, including their infrastructure facilitiesConditionsBook profits subject to MAT; nevertheless, MAT credit available for10 years SEZ units eligible for a 15-year tax holiday (in a phased manner refer below table)Book profits subject to MAT; nevertheless, MAT credit is available for10 years Developers eligible for a 10-year tax holiday out of 15 years fromthe year in which the particular SEZ is notifiedTaxholidayDeductionformulafor SEZP rofits of SEZ unit x [export turnover of unit/total turnover of unit]

7 Quantum of deduction for the SEZ unitPeriod of deduction100% of export profitsFirst 5 years50% of export profitsNext 5 years50% of export profits, provided that the profits aretransferred to a Special Economic Zone ReinvestmentReserve Account for the purpose of acquiring plant ormachinery within 3 yearsNext 5 yearsSEZ benefits (for the unit/developer) once expired cannot be renewed=Moreincentives for SEZ unitsCustoms duty Customs dutyexemptionon goods imported for authorizedoperations Customs duty not payable on goods exported by a unit to anyplace outside India (though customs duty is payable on a sale tothe DTA) No specific approval/license required for importsExcise duty Excise dutyexemptionon all goods brought from the DTA into anSEZ Unit to carry out authorized operations Goods manufactured by an SEZ unit not liable to excise duty (butclearances are subject to customs duty)

8 Value-added tax VAT exemption on the purchase of goods within the state in mostof the States Exemption from CST on the inter-state purchase of goods used forauthorized operationsService tax Upfront exemption from service tax for services received by theSEZ for authorized operations Other services not exclusively used for authorized operationseligible for service tax refund, subject to conditions Output services provided by SEZ zero rated if servicesqualify as export of service States grantadditional benefitssuch as stampduty exemption,VAT exemption/refund andelectricity dutyexemptionEOUE xemption/Refund of various indirect taxes such as customs duty, excise duty and CST on theprocurement of capital goods and inputs (as the case be)

9 For permitted operationsEPCGA llows duty-free procurement of capital goods by exporters, subject to the fulfilment of exportobligation and other specified conditionsAA/DFIAP ermit the import of inputs without customs duty, subject to the fulfilment of value-added normsand export obligationDuty drawbackPost export benefit to allows rebate of taxes and duty paid on inputs and input services used inthe manufacture of exported goods at prescribed ratesFPS/FMSPost export benefit allowed by way of duty credit scrip equivalent to a specified percentage ofthe FOB value of exports of specified products to any country/all products to notified countriesSFISA vailable to specified service providers having service exports of INR1 million or more forimport/procurement of spares, office equipment.

10 Furniture and consumablesPost export benefit allowed by way of duty credit scrip equivalent to 10% of the net foreignexchange earned in the current financial yearBenefitsSchemeIncentives forexportersActivity-basedincentivesWeig hted deduction for R&DApplications are reviewed in depth by the DSIR before granting approvalPermissible expenditure: capitalexpenditure incurred (except onland and building) up to 31 March2017 on in-house scientific R&Dfacility approved by the DSIRC ompanies engaged in themanufacturing or production of anyarticle or thing (other than as mentionedin Schedule 11 Refer Annexure 1)or in bio technology business200% deduction on in-house R&D Separate accounts to be maintained andaudited for each approved facility Progress report of R&D activities to besubmitted every year within the prescribedtimeKey compliancesEligibilityBenefit.