Centre mulls concessional corporate tax rate for new manufacturing plants in Budget 2025-26

In what could give a push to nascent private investments and slowing economic growth, the Centre is once again thinking of offering a lower corporate tax rate for companies setting up new manufacturing facilities in the country.
 
As part of the proposal, the government could offer a concessional corporate tax rate of between 15% and 18% to companies setting up new manufacturing entities. These could include both Greenfield and brownfield projects, giving additional flexibility to investors.
 
At present, the corporate tax rate for domestic companies is 22% and a lower tax rate could add to India’s attractiveness as a manufacturing destination and give a boost to slowing economic growth, which is seen to be at 6.4% this fiscal and at less than 7% even in FY26.
 
The proposal is understood to be still in discussion in the finance ministry and a decision will be taken in the coming weeks before the presentation of the Union Budget 2025-26 on February 1.
 
A return to a concessional corporate tax rate regime has been a key suggestion by several industry chambers and experts who have said that it could give a boost to domestic manufacturing facilities. The earlier concessional corporate tax regime of 15%, which was announced in mid-2019 was not utilised fully as the Covid-19 pandemic and subsequent lockdown impact expansion plans of companies, they contend.
 
Dinesh Kanabar, CEO, Dhruva Advisors noted that such a move would prove to be an incentive for capital expenditure as well as job creation in the economy. “Several representations have been made to the government to revive the 15% corporate tax rate. While the Production Linked Incentive does support new manufacturing projects in the scheme, there is a need for a tax incentive as well. Such a concessional rate will not make the tax structure complicated but will just support new manufacturing,” he said in an interaction to BTTV.
 
The earlier scheme was available to new manufacturing companies set up from October 1, 2019, to March 31, 2023. The sunset clause was subsequently extended by one year to March 31, 2024, but the government chose not to extend it further. Officials had at the time noted that the scheme had not seen adequate interest from companies. But it is back on the discussion table again as one of the means that could spur private investments and give a fillip to growth.
 
Rohintan Sidhwa, Partner at Deloitte India noted that considering the significant role this measure has played in promoting economic goals and attracting foreign investments, the tax policy administration may think about reintroducing this regime for companies starting manufacturing operations from 1 April 2024. “Extending the concessional tax rate would provide an opportunity for such investors who are currently in the process of setting up or considering India as a potential investment destination to use this opportunity,” he said.
 
Geopolitical uncertainties and the evolving external landscape, with the US keen on lowering its reliance on China as well as several other countries following a China+1 strategy, have also sparked discussion on this proposal.
 
Calling for a concessional tax rate for new companies or expansion made by the existing companies, Assocham in its pre-Budget memorandum noted that a similar benefit should be reintroduced as it will promote the ‘Make in India’ initiative. “It will help in maintaining attractiveness for setting up new manufacturing units mainly to promote exports in accordance with the China Plus One strategy. It will provide an alternative to multinational groups to set-up manufacturing hubs at locations other than China and Taiwan,” it said.