Fiscal Incentives

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Fiscal Incentives

Fiscal Incentives for Food Processing Sector

Various fiscal incentives are provided by the Government of India for promoting investment in the Food Processing sector. Some of the key incentives are outlined below:

Income Tax

Profit-linked tax holiday under section 80-IB of the Income tax Act 1961:

Section 80-IB of the Income-tax Act, 1961 provides a deduction for profits and gains derived by eligible businesses. One of the eligible businesses is business of processing, preservation and packaging of fruits, vegetables, meat, meat products, poultry, marine, dairy products or the integrated business of handling, storage and transportation of food grains.

    The deduction that has been specified for the aforesaid businesses is as follows:

  • 100% of profits and gains derived: First five years (beginning in the year in which the undertaking commences undertaking the eligible business
  • 100% of profits and gains derived: First five years (beginning in the year in which the undertaking commences undertaking the eligible business
  • 25% (30% in the case of a company) of profits and gains derived: Next five years

    To avail the benefit of this tax deduction, the above-defined eligible business should have commenced business on or after the following dates:

  • Processing, preservation and packaging of fruits and vegetables, or integrated business of handling, storage and transportation of food grains: 1 April 2001
  • Processing, preservation and packaging of meat, meat products, poultry, marine or dairy products: 1 April 2009.

Investment-linked deduction under section 35-AD of the Income-tax Act, 1961:

Section 35-AD of the Income-tax Act, 1961 provides an investment-linked deduction for capital expenditure incurred wholly and exclusively for the purpose of ‘specified businesses’. Depending on the specified business for which the capital expenditure is incurred, deduction of 100% or weighted deduction of 150% is available under this section. Some of the relevant specified businesses, alongwith the deduction available for capital expenditure under this section is given below:

    150% weighted deduction for the specified business of:

  • Setting-up and operating a cold chain facility
  • Setting-up and operating warehousing facility for storage of agricultural produce

    150% weighted deduction for the specified business of:

  • Setting-up and operating a warehousing facility for storage of sugar
  • Bee-keeping and production of honey and beeswax
  • Production of fertilizers in India

Where an investment-linked deduction is claimed and allowed under this section, one would not be permitted to also claim an income-linked deduction (such as that under section 80-IB of the Act).

Tax holiday under section 10AA of the Income-tax Act, 1961:

    As per section 10AA of the Income-tax Act, 1961, units that have been set up in an SEZ prior to 1 April 2021, engaged in the manufacture or production of any article or thing, shall be eligible for the following deductions for profits and gains derived:

  • First five years (beginning in the year in which the undertaking commences manufacturing/ production): 100% deduction of profits derived from exports
  • Next five years: 50% of profits and gains derived from exports
  • Next five years: 50% of profits derived, subject to the deduction amount being debited to a “Special Economic Zone Re-investment Account” and used for certain specified purposes (such as purchase of plant and machinery).

Goods and Services Tax (GST)

GST, an indirect tax introduced in India on 1 July 2017, is applicable throughout the country. It has subsumed within itself the multiple cascading taxes levied by the Central and State Governments.

Under GST, goods and services are taxed at the rates of 0%(Nil), 5%, 12% ,18% and 28%. Ministry of Food Processing and Industries (MoFPI) has under taken several initiatives for the development of Food Processing sector, including streamlining rates for products under GST regime. The web-link below highlights various applicable rates.

http://mofpi.nic.in/announcements/product-wise-gst-rates-food-products

Project Import Scheme

The Project Imports Scheme is a scheme under the Indian customs law under which goods imported for the purpose of setting-up of industrial projects orsubstantial expansion of an existingindustrial project are eligible for a single rateof concessional basic customs.

Import of goods under this scheme helps facilitate smooth and quickassessment through a simplified process of classification and valuation,and by placing the goods imported under a single tariff classification code.

Projects eligible for concessional customs duty rates under this schemeinclude industrial plants, irrigation projects and power projects amongothers.

    Duties and taxes applicable under the Project Imports scheme

  • The basic customs duty rate for goods imported under the Project Imports Scheme (ie under chapter heading 98.01) is 5%, as typically applicable for food processing projects.
  • However, for certain specified projects (such as a specified drinking water supply project), the basic customs duty rate is 0%. (Basic custom duty rate for goods imported under this scheme is specified under entry numbers 597 to 606 of Customs Tariff Notification 50/2017 dated 30 June 2017)
  • Prior to 1 July 2017, Countervailing Duty (CVD) on import of goods under this scheme was applicable and the CVD rate was equivalent to the excise duty rate applicable for the respective goods. Hence, the CVD rate for goods imported under this scheme varied depending on their classification under the Central Excise Tariff.
  • After the introduction of GST, goods imported under this scheme shall be classified under chapter 98.01 and be liable to IGST at 18%. [Entry no 451 of Schedule III of CGST rate notification 1/2017 dated 28 June 2017 (Clarified vide Circular no F. No. 609/54/2017-DBK dated 30 June 2017)]

MoFPI has been designated as the sponsoring authority under this scheme for projects including industrial projects for preservation,storage or processing of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine produce and meat, as well as cold storageand cold room projects.

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