I am setting up an industrial undertaking in a backward district which is covered by the tax holiday provisions under the income-tax law.

By H. P. Ranina

  • Follow us on
  • google-news
  • whatsapp
  • telegram

Published: Tue 27 Aug 2013, 12:28 AM

Last updated: Fri 3 Apr 2015, 4:31 AM

The state government is giving power subsidy, interest subsidy and insurance subsidy. Would these amounts also be exempt from tax when I set up the industrial unit?

— S. Goenka, Doha

Answer: If the unit is eligible for deduction under section 80-IB or 80-IC of the Income-tax Act, the income derived from the industrial unit or eligible business is entitled to the tax holiday which is 100 per cent of the profits earned during the prescribed period.The tax department has been taking the stand that the subsidies given for new industrial projects are meant for promoting industrial growth and, therefore, the benefit of exemption which is available for the profits of the industrial unit cannot be allowed. There must be a direct nexus between the subsidy received and the profits of the industrial unit. The Gauhati High Court held that if there is a direct and first degree nexus between the subsidies and the profits earned by the industrial unit, the benefit of tax holiday should be granted. Thus, if the subsidy results in reducing the cost of production, it would have a direct nexus with the profits earned by the industrial unit. Such profits would, therefore, be eligible for the tax holiday benefit. Based on this principle, the Court held that power subsidy, interest subsidy and insurance subsidy are eligible for the tax holiday benefit.

Q: With the current account deficit widening in India, are any steps being taken to encourage greater export of agricultural produce as well as fruits and flowers for which there is a substantial market in the Middle East and Europe?

— P.K. Vasudevan, Dubai

A: Exports of agricultural produce have been increasing during the past few years. Some State Governments are setting up offices in the Middle East with a view to promote export of fruits, vegetables and flowers. Farmers are being encouraged in India to opt for group farming and to supply the produce to a single entity which has expertise in packaging and marketing. In Maharashtra and Gujarat, contract farming is also being encouraged in order to ensure that the right quality of fruits and vegetables are grown for the export market.The state governments are also setting up cold storage facilities for preserving these perishable commodities.Improved transport infrastructure has also helped in raising agricultural exports to a substantial extent.New varieties of vegetables like brocolli, gherkins, etc, are also being grown for the export market.

Q: I am from Manipur.As I am returning to India, I would like to set up a business in my state.I have been informed that for certain businesses I do not have to pay tax.Can you please guide me?

— S. Baruah, Abu Dhabi

A: Certain businesses which are started before April 1, 2017 are eligible for tax exemption where such businesses are set up in the north eastern states of India. Section 80-IE of the Income Tax Act allows hundred per cent tax exemption of profits derived from eligible businesses for 10 consecutive years commencing with the year in which the business is started.The eligible businesses are that of a hotel of three-star or higher category, leisure sports, provision of medical services in a nursing home having atleast 25 beds, running an old age home, operating certain vocational training institutes, biotechnology, running training centre for information technology and manufacture of IT hardware.

The writer is a practicing lawyer, specialising in tax and exchange management laws of India.

More news from