Skip to main content

Contract Mfg Yet to Reap Benefit of Budget Perk

By
Update of Cenvat credit to allow manufacturers to transfer tax credit to an outsourced unit stuck due to definition issue
An ambiguity in drafting has prevented companies that rely on outsourcing from getting the benefit of a key change announced in this year's budget. This was aimed at providing credit for taxes paid even if work was outsourced. The government did not carry out complementary changes to the definition of `input service', which has led to some being denied the advantage of the provision, a precursor to the goods and services tax regime.
A number of pharmaceutical companies, soft drink makers, fastmoving consumer goods compani es and garment makers outsource all their work to workers or contract manufacturers. The budget proposal was seen as a big impetus to contract manufacturing.
In the budget, the government proposed an amendment in the Cenvat (central value added tax) credit provisions to allow manufacturers or service providers to transfer tax credit to an outsourced unit, partially or fully. This was seen as encouraging outsourcing as companies can pass on accumulated tax credits.
The proposal has got stuck over the definition issue.
Industry has asked the government to resolve the matter when the finance bill is passed in the second half of the budget session that begins April 25.
Incidentally, companies that rely fully on outsourced manufacturing are the ones affected. Those that outsource and manufacture partially don't face any issue.
Tax experts said further streamlining of the provision is required.
“The new provision to allow transfer of credit to a job worker or contract manufacturer will reduce the cascading of taxes where some part of manufacturing is outsourced,“ said Bipin Sapra, partner, EY.“However, in case the entire manufacturing is outsourced, the credits on brand promotion etc. will not be available to the contractee.“
Sapra said a further concession in this regard will fully streamline the availability of credit in the case of contract manufacturing and incentivise such activity.
The government will need to tweak the definition of input services to include those that are covered. A small change is needed to say those that outsource or transfer manufacturing activity are also included in the definition of input service distributor. The piling up of Cenvat credit, in lieu of tax paid on inputs, to set off tax liabilities has been a longstanding issue for industry. The government had in this year's budget tried to address the issue, bringing relief to industry.
The Economic Times New Delhi,18th April 2016

Comments

Post a Comment

Popular posts from this blog

New income tax slab and rates for new tax regime FY 2023-24 (AY 2024-25) announced in Budget 2023

By
  Basic exemption limit has been hiked to Rs.3 lakh from Rs 2.5 currently under the new income tax regime in Budget 2023. Further, the income tax slabs in the new tax regime has been changed. According to the announcement, 5 income tax slabs will be there in FY 2023-24, from 6 income tax slabs currently. A rebate under Section 87A has been enhanced under the new tax regime; from the current income level of Rs.5 lakh to Rs.7 lakh. Thus, individuals opting for the new income tax regime and having an income up to Rs.7 lakh will not pay any taxes   The income tax slabs under the new income tax regime will now be as follows: Rs 0 to Rs 3 lakh - 0% tax rate Rs 3 lakh to 6 lakh - 5% Rs 6 lakh to 9 lakh - 10% Rs 9 lakh to Rs 12 lakh - 15% Rs 12 lakh to Rs 15 lakh - 20% Above Rs 15 lakh - 30%   The revised Income tax slabs under new tax regime for FY 2023-24 (AY 2024-25)   Income tax slabs under new tax regime Income tax rates under new tax regime O to Rs 3 lakh 0 Rs 3 lakh to Rs 6 lakh 5% Rs 6
Post a Comment
Read more

Jaitley plans to cut MSME tax rate to 25%

By
Income tax for companies with annual turnover up to ?50 crore has been reduced to 25% from 30% in order to make Micro, Small and Medium Enterprises (MSME) companies more viable and also to encourage firms to migrate to a company format. This move will benefit 96% or 6.67 lakh of the 6.94 lakh companies filing returns of lower taxation and make MSME sector more competitive as compared with large companies. However, bigger firms have shown their disappointment since the proposal for reducing tax rates was to make Indian firms competitive globally and it is the large firms that are competing globally. The Finance Minister foregone revenue estimate of Rs 7,200 crore per annum for this for this measure. Besides, the Finance Minister refrained from removing or reducing Minimum Alternate Tax (MAT), a popular demand from India Inc., but provided a higher period of 15 years for carry forward of future credit claims, instead of the existing 10-year period. “It is not practical to rem
1 comment
Read more

Don't forget to verify your income tax return in August: Here's the process

By
  An ITR return needs to be verified within 120 days of filing of tax return. Now that you have filed your income tax return, remember to verify it because your return filing process is not complete unless you do so. The CBDT has reduced the time limit of ITR verification to 30 days (from 120 days) from the date of return submission. The new rule is applicable for the returns filed online on or after 1st August 2022. E-verification is the most convenient and instant method for verifying your ITR. However, if you prefer not to e-verify, you have the option to verify it by sending a physical copy of the ITR-V. Taxpayers who filed returns by July 31, 2023 but forget to verify their tax returns, will get the following email from the tax department, as per ClearTax. If your ITR is not verified within 30 days of e-filing, it will be considered invalid, and may be liable to pay a Late Fee. Aadhaar OTP | EVC through bank account | EVC through Demat account | Sending duly signed ITR-V through s
Post a Comment
Read more