Special Tax Incentives for Manufacturing in India
Special Tax Incentives for Manufacturing in India

Oct 05, 2021

In recent years, the Indian government has implemented a number of tax incentives for manufacturers. These incentives were created by the Make in India program and the Goods and Services Tax (GST), which are expected to increase the nation’s share of the global electronics manufacturing market. The Make in India Program, established in 2014, provides new incentives aimed at promoting investment, fostering innovation, and protecting intellectual property. In 2017, India’s GST program was launched and it provides a uniform, transparent tax code.

The goal of both programs is to create more jobs across the country and across many industries that have often been outsourced across the globe. The tax incentives are designed to attract investors to the Indian manufacturing sector while increasing the job market and improving the Indian economy. They fall under several different categories, including tax holidays and credits, rebates, and investment allowances. There are other tax incentives that vary based on industry, region, and other criteria.

India’s Manufacturing Tax Incentives

  • Activity Incentives: These incentives are for any manufacturers and producers fulfilling certain conditions. They provide a 150% deduction on on-premises research and development, as well as funding the importation of any materials needed for these activities. Eligible manufacturers and producers also qualify for an exemption from customs duty.
  • Exportation Incentives: These incentives tend to offer rebates or waivers from charges and fees related to exportation and purchase of goods within a special economic zone (SEZ). This includes exemptions of customs duty, VAT, excise duties, and service taxes. These incentives are incredibly attractive for exporters, as they can cut back significantly on their operation, transport, and sale costs and fees. These incentives also offer to deduct 100% of a manufacturer’s export profits for the first 5 years of participation. This drops to 50% for the second 5 years and stays at 50% for another 5 if profits fulfill certain terms and conditions, including going to a special account for the purpose of buying manufacturing equipment.
  • Industry Tax Incentives: These tax incentives fall within specific industries that have unique or specific needs and requirements. The incentives supply tax deductions or direct reimbursement of many industry-incurred expenses, such as material storage and other necessities. They might also include the costs associated with running a hotel, developing a housing unit or sector, building a specialty transport system for unique materials, or maintaining specialty storage units for sensitive food- and medical-grade materials. Eligible manufacturers in these industries will receive incentives in the form of tax deductions or repayment equaling 100% of the total fees associated with running their company.
  • Investment-based Incentives: In order to attract investment in specified sectors and to boost exports, these incentives are offered on the investment made by the industries. The Government offers a CAPEX subsidy of 20-25% and a grant-in-aid of 50-75% of the total project cost for those companies meeting the criteria.
  • New Employee Incentives: In an effort to grow the job market, the Indian government is also offering incentives for manufacturers who increase their workforce by at least 10% and add at least 100 new employees. Manufacturers meeting these criteria receive a tax deduction of 30% of their workers’ earnings for a total of three years. This only applies to the new employees that are brought on.
  • Skill Development Incentives: These incentives apply to manufacturing companies that supply special services requiring extensive employee training. These usually fall into such industries as telecom services (including television and radio), healthcare, advertising or marketing, and construction. Tax incentives for skill development deduct 150% of the fees that were paid toward providing employees with training, allowing manufacturers to make the money back on the skill development needed for their industry. These fees may also be repaid to the company in cash returns rather than tax deductions. The company must, of course, keep a careful record of its training needs and requirements. To be eligible, employees must take 6 months or more to complete a training program before starting full-time employment.
  • State-Based Incentives: These incentives can vary significantly from state to state. The states in northeastern India have a set of tax incentives for manufacturers. These vary based on the available industries, region size, investment potential, and the products produced in the region, among other considerations. Incentives might be tied into the land on which the manufacturing process takes place. These incentives might include waivers or permissions related to registration fees, stamp duties, property taxes, or more. If they’re related to the business infrastructure, they could include rebates or waivers on duties and tariffs related to utilities or subsidies on equipment related to manufacturing or clean air.

All these tax incentives are implemented for the purpose of expanding the job force in India, as well as bolstering the manufacturing sectors to give the economy a much-needed lift. The Indian government aims to build new infrastructure throughout India, and it recognizes that local and regional manufacturers need incentives to make that a reality. There are many more specialty considerations under every one of these categories for businesses to be eligible for tax incentives or deductions. However, the basics provide refunds for operating costs to create a stronger manufacturing industry across many sectors in India. We’re excited about the continued support the Government of India has devoted toward establishing our home country as a global hub of electronics manufacturing. [1]

Backed by 40 Years of Expertise

We contribute our 40 years of design and manufacturing expertise spanning multiple diverse markets. We look forward to discussing how we can deliver world-class products for OEMs across the globe. We understand our home Indian market, familiar with its vast regulatory and selling environments. We foster growth opportunities within India through our strong technology incubation ecosystem. We also assist global OEMs in entering the Indian market by leveraging the local supply chain and favorable operating environments for cost reductions.

Our flagship Chennai location opened in 2006 and lies within a Special Economic Zone (SEZ) for electronics manufacturing, offering economic incentives for imports and exports. This primary facility is within 90 minutes of the Chennai seaport and 20 minutes to the international airport. Additional road and rail connectivity links to the rest of India and beyond and infrastructure advantages with faster import and export clearances. We also have labor force flexibility, both technical and manual, to scale to demand rapidly.

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