Budget 2024: Startups get tax exemption, manufacturers left out

The interim budget has proposed a one-year extension of the timeline for startups, sovereign funds and certain businesses in Gujarat International Finance Tec-City (GIFT-City) to claim tax breaks. However, a similar extension has not been given to new manufacturing companies.

“Certain tax benefits to startups and investments made by sovereign wealth or pension funds as also tax exemption on certain income of some IFSC units are expiring on 31 March 2024. To provide continuity in taxation, I propose to extend the date to 31 March 2025,” finance minister Nirmala Sitharaman said in her budget speech. 

The government had made a provision for startups incorporated between 1 April 2016 and 31 March 2024 to avail tax rebate on their entire profit for three consecutive years out of their first 10 years of operations, provided that their annual turnover does not exceed ₹100 crore. The eligibility to avail this benefit has now been extended to startups incorporated before 31 March 2025.

Similarly, to fund the ongoing infrastructure development push, the Centre had earlier introduced an income tax exemption for investments by sovereign wealth funds and pension funds. As per the provision introduced in FY21, income generated by such funds from investments in specified infrastructure activities were exempt from income tax.

The investments were to be made before 31 March 2024 to avail the tax breaks. Now, this timeline too has been extended by a year. 

The government had also given tax breaks to businesses registering in GIFT City, particularly to offshore banking units and aircraft and ship lessors. The cut-off for these businesses to start operations to avail benefits has been extended by a year to 31 March 2025. 

While industry watchers welcomed the tax break extensions, there were also murmurs on such an extension not being granted to new manufacturing units. “The tax break timeline extensions are a very welcome move. The only disappointment was that the benefits for new manufacturing companies were not extended,” Dinesh Kanabar, the founder and chief executive of Dhruva Advisors, told Mint. 

The government had announced in 2019 a lower corporate tax of 15% compared to normal rate of 25% for new manufacturing units set up in the country. The revised deadline for companies to start operations to avail the lower tax rate was 31 March 2024. 

The industry was lobbying for an extension of this deadline by a few years in the interim budget. “This has been the demand from industry veterans to extend this concessional tax rate by few more years,” said Amit Singhania, founder, Areete Law Offices. 

“Particularly, it may be noted that this is in line with government focus on PLI (production-linked incentives) schemes. The concept of PLI and concessional tax rate of 15% is similar in the sense that both provides concessions to promote local manufacturing,” he said. 

Speaking about the extension of timeline for businesses to avail tax breaks in GIFT City, Tapan Ray, the managing director of GIFT City said that the move will be “crucial for sustaining ease of doing business and ensuring stability in taxation”.

“Recognizing the crucial role of GIFT City as a global financial gateway, the decision to extend tax exemptions on specific IFSC unit income, reflects a forward-looking approach,” Ray said. “This decision aligns with our shared vision for fostering a thriving IFSC ecosystem, contributing to India's economic prowess.”