The recent tax amendments in India have brought about significant changes for manufacturing businesses in the country. These changes have both positive and negative implications and it is important for manufacturing businesses to understand how these amendments will affect their operations and finances.
The government has extended the concessional corporate tax rate of 15% for one more year, till March 2024, for newly incorporated manufacturing companies.
The highest surcharge of 37% for high net worth individuals (HNIs) has been lowered to 25% under the new tax regime, which also offers lower tax rates for different income slabs.
The standard deduction of Rs. 50,000 on salary income, which was not allowed under the new tax regime until FY 2022-23, will now be available for salaried employees and pensioners opting for the new tax regime from FY 2023-24.
The tax rebate limit under section 87A has been increased from Rs. 5 lakhs to Rs. 7 lakhs under the new tax regime, which means that taxpayers with income up to Rs. 7 lakhs will not have to pay any tax irrespective of their investments.
The new tax regime will become the default tax regime from FY 2023-24, but taxpayers will still have the option to choose the old regime if they file their ITR on or before the due date.
One of the key changes is the introduction of the Goods and Services Tax (GST), which has replaced multiple indirect taxes such as excise duty, service tax, and value-added tax. The GST aims to simplify the tax structure and promote a unified market across the country. However, the implementation of GST has led to some initial challenges for manufacturing businesses.
One of the challenges faced by manufacturing businesses is the increased compliance burden. Under the GST regime, businesses are required to file multiple returns and maintain detailed records of their transactions. This has increased the administrative workload for manufacturing businesses, especially for small and medium-sized enterprises (SMEs) that may not have the resources to handle the additional compliance requirements.
Another impact of the new tax amendments is the change in input tax credit provisions. Under the GST regime, businesses can claim input tax credit on their purchases, which helps offset the tax liability on their sales. However, there are certain restrictions on claiming input tax credit, such as the requirement to have proper documentation and timely filing of returns. Manufacturing businesses need to ensure that they comply with these provisions to avoid any penalties or loss of input tax credit.
On the positive side, the new tax amendments have brought about a reduction in overall tax rates for manufacturing businesses. The GST has streamlined the tax structure and eliminated multiple layers of taxation, resulting in lower tax rates for many goods and services. This reduction in tax rates can have a positive impact on the profitability of manufacturing businesses, as it reduces their tax liability and increases their competitiveness in the market.
Additionally, the GST has also facilitated the seamless movement of goods across state borders. Earlier, manufacturing businesses had to deal with multiple state-specific tax laws and compliance requirements, which often resulted in delays and additional costs. With the introduction of the GST, the movement of goods has become smoother and more efficient, leading to cost savings for manufacturing businesses.
However, it is important for manufacturing businesses to carefully analyze the impact of the new tax amendments on their specific operations. While the overall impact of the amendments may be positive, there may be certain sectors or businesses that are adversely affected. It is advisable for manufacturing businesses to seek professional advice and conduct a thorough analysis of their tax obligations and benefits under the new regime.