Indian Government wants Indian private limited companies to set up new manufacturing units on a faster pace

 Private Limited Company Registration

 

In order to encourage more and more new private limited company registration in manufacturing sector, previously, the government of India, in the year 2019 has introduced a concessional rate of 15% instead of 25%.

 

As per the new scheme introduced by the government in September 2019, in case of new private limited company registration with an intention to make fresh investment in the manufacturing sector, tax rate will be applicable at 15% in case such new companies starts the commercial production on or before 31st March 2023. This concessional scheme was applicable only for domestic companies. Also, no further income tax exemption or incentives were allowed to such companies. This concessional tax regime was optional.



Now, the government wants the setting up of manufacturing units on a very fast pace, accordingly, the government has extended the concessional rate of tax of 15% by one more year i.e till 31st March 2024.

 

After taking into consideration the surcharges and education cess, the effective tax rate in case of existing units would become 25.17% as compared to 34.94% and for new units, it would become 17.01 % as compared to 29.12% in earlier years.

Since there is a huge difference in the tax regime of 30% and 22%, more and more companies will opt for new tax regime in the coming future.

Both the direct and indirect tax collections are going up and it is expected that the country’s tax to GDP ratio would be highest ever in the current year.

 

The context in which such scheme has been extended is that the capital expenditure in India has been more than double in the last 3 years, which will push the GDP growth which in turn will increase the job opportunities, income of businessmen and taxes would also improve. This will result in more and more private sector investments which will lead to the overall growth of the economy. Keeping in mind the above context, provision of concessional 15% tax has been extended till the year 2024.

 

The tax to GDP ratio provides a hint of government is keeping its tax policy stable and further corporate sector is also adjusting to less exemption regime. Further, the country is witnessing the economic recovery which is due to the result of increase in direct tax collections after gap of 3 years.

 

After a gap of three years, direct tax collections which include corporate tax and personal income tax have exceeded the budget estimates for the 2021-22 fiscal ending March 2022, indicating economic recovery.

The estimates of direct tax collection for FY 2021-22 has been revised towards upward trend and revenue of large corporate sectors are also increasing, however, as far as MSME sectors are concerned, they still need hand holding and it will take some more time for its recovery.

In recent years, the government has taken lot of steps for the stability and predictability of the tax regime like:

a)      Provision of reduction in tax litigation

b)      Changes in the faceless scheme and

c)      Updated returns for helping taxpayers introduced in recent budget

Extending the concessional rate of tax of 15% up till the year 2024 is a welcome step and it will lead to more and more private limited company registration with the objective of making investment in the manufacturing sector.

Location: India

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