Fiscal Incentives for Food Processing Sector
From time to time, Government of India has announced a number of fiscal incentives for promoting investment in food processing sector. The major incentives given by the Government as under:-
Deduction in Expenditure:
Under Section 35-AD of the Income tax Act 1961, deduction for expenditure incurred on investment is allowed if this investment is wholly and exclusively for the purpose of any specified business (Details given below). However, this deduction is allowed only for the investment made in the previous year and prior to commencement of its operations.
Businesses allowed 150% deduction (provided the taxpayer has commenced its business on or after 01.04.2012)
Setting up and operating a cold chain facility
Setting up and operating warehousing facility for storage of agricultural produce
Business allowed 100% deduction
Bee-keeping and production of honey and beeswax
Setting up and operating a warehousing facility for storage of sugar
For generating more employment, an amendment regarding eligibility threshold of minimum 100 workmen is proposed to be reduced to fifty is made in the provisions of section 80JJAA of the Income-tax act
Construction, Erection, Commissioning or installation of original works pertaining to post-harvest storage infrastructure for agricultural produce including Cold storages for such purposes.
Mechanized Food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages; and
Services of Loading, unloading, packing, storage or warehousing of agricultural produce.
Services of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables are being exempted.
Services by way of transportation by rail or a vessel and by a goods transport agency used for transportation of agricultural produce and food stuff including flours, rice, pulses, tea, coffee, jaggery, sugar, milk, milk products, salt and edible oil, excluding alcoholic beverages.
Projects for the installation of mechanized food grain handling systems and pallet racking systems in ‘Mandis’ and Warehouses for food grains and sugar;
Cold storage, cold room (including for farm level pre-cooling) or industrial projects for preservation, storage or processing of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine produce and meat.
Customs duty on Hazelnuts has been reduced from 30% to 10%. (Ref. Notification No 12/2013-Customs dated 1.3.2013)
Customs Duty on De-hulled Oat grains has been reduced from 30% to 15%. (Ref. Notification No 12/2013-Customs dated 1.3.2013)
Nil Duty in Milk, Milk Products (Chapter 4), Vegetables (Chapter 7), Nuts and Fruits, fresh & Dried (Chapter 8).
As against standard excise rate of 12%, Processed Fruits & Vegetables (Chapter 20) carries a merit rate of 2% without CENVAT or 6% with CENVAT.
Soya Milk Drinks, Flavoured Milk of Animal origin also carries a duty of 2% without CENVAT or 6% with CENVAT.
All refrigeration machineries and Parts used for installation of cold storage, cold room or refrigerated vehicle, for the preservation, storage, transport or processing of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine produce and meat are exempted from Excise Duty.
Pasteuring, drying, evaporating, etc machinery used in Dairy sector is exempted from Excise Duty.
[Notification No 12/2012-Central Excise dated 17.3.2012]
Excise duty on machinery for the preparation of meat, poultry, fruits, nuts or vegetables and on presses, crushers and similar machinery used in the manufacture of wine, cider, fruit juices or similar beverages and on packing machinery is reduced from 10% to 6%.
[Notification No 12/2014-Central excise dated 11th July 2014]
Deduction of Tax from profit:
Under Section 80 IB(11A) of the Income Tax Act, 1961, new units (i.e. not formed by splitting up or by way of reconstruction of an existing business) in the business of processing, preservations and packaging of fruits or vegetables, meat & meat product, poultry, marine or dairy products are permitted to claim deduction from Income tax.
This tax incentive is available as 100% tax exemption for the first 5 years’ of operation, and after that, at the rate of 25% of the profits being exempted from tax; 30% in case of a company. This benefit is available only for ten years provided that such business had commenced on or after 1.04.2001.
If any business relating to meat, meat products, poultry, marine products or dairy products has started after 1.4.2009, the above benefits would be available, but not to the units operating in such business before 01.04.2009.
Under Finance Act, 1994, Service Tax is not leviable on items contained in the Negative List. These services are as follow:
Services including processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market. (Ref. Section 66 D (d) (iii) Chapter V of the Finance Act, 1994)
Ministry of Finance vides notification dated 20th June 2012 has given exemption of Service Tax for following services:-
(Ref. Service Tax notification No. 25/2012-Service Tax dated 20th June 2012 as amended by Notification 3/2013 dated 1st March 2013, issued under Section 93 Chapter V of the Finance Act, 1994- Power to grant exemption from service tax.)
Government has extended Project Imports’ benefits to the following projects:
Consequently, all goods related to Food Processing, imported as part of the project, irrespective of their tariff classification, would be entitled to uniform assessment at concessional basic customs duty. (Ref. Notification No 12/2012 dated 17.3.2012)
Central Excise Duty
In order to promote food processing industry, the Government has given concessions in Central Excise Duty from time to time. Duty structure of some of the processed food items are as under:-
Food Processing Machineries:
[For Central Excise duty visit: http://www.cbec.gov.in/excise/cxt2013-14/cxt-1314-idx.htm and read with Notification No 12/2012-Central Excise dated 17.3.2012, 12/2013-Central Excise dated 1.3.2013& No 12/2014-Central excise dated 11th July 2014]