Tax Relief for Speedy Growth of Food Processing Sector

The Govt. has extended the following incentives and promotional measures for the promotion of food processing sector:

1. Income Tax Relief

a) Under sub-section (11A) of section 80 IB of the Income Tax Act, 1961 a deduction from profits up to specified amounts [100% for the first 5 assessment years and thereafter, 25%(30% in the case of a company) for another 5 assessment years] is allowed in the case of an undertaking deriving profit from the business of processing, preservation and packaging of fruits or vegetables or from the integrated business of handling, storage and transportation of food grains subject to specified conditions, if such undertaking begins to operate such business on or after the 1st day of Apri 1, 2001.

b) With a view to encouraging preserving perishable food items like milk, poultry and meat, the Finance (No.2) Act, 2009 amended sub-section (11A) of section 80 IB to also provide tax holiday in respect of the business of processing, preserving and packaging of meat and meat products and poultry, marine and dairy products for units which begin to operate such business on or after 01.04.2001.

c) Further, Finance (No.2) Act, 2009 also extended an investment-linked tax incentive by way of insertion of a new section 35AD in the income tax Act, 1961 to the business of setting up and operating cold chain facilities for specified products and to the business of setting up and operating warehousing facilities for storage of agricultural produce, commencing operations on or after 01.04.2009. As per this section 100% deduction would be allowed in respect of the whole of any expenditure of capital nature (other than on land, goodwill or financial instruments) incurred, wholly and exclusively, for the purpose of the specified business during the previous year in which such expenditure is incurred subject to specified conditions in order to give an impetus to the setting up of food processing units.

d) To further encourage R & D across all sectors of the economy in the Union Budget 2011-12, weighted deduction on expenditure incurred on in house R&D has been enhanced from 150% to 200%, Further, weighted deduction on payments made to National Laboratories, Research Organisations, Colleges, Universities and other institutions for scientific research enhanced from 125% to 175%.

2. Central Excise Duty

• While some processed foods items attract Nil Excise Duty such as condensed milk, Compounded asafoetida, soya protein etc., others attract a concessional rate of 1% subject to non-availment of Cenvat credit or 5% with Cenvat credit and 10% ad valorem.

• Full exemption from excise duty has been extended to:

– Specified goods intended to be used for the installation of a cold storage, cold room or refrigerated vehicle, for the preservation, storage, transport or processing of agriculture, apiary, horticulture, dairy poultry, aquatic and marine product and meat.

– Conveyer belt system used in cold storage facilities for the preservation, storage, transport or processing agriculture, apiary, horticulture, dairy, poultry, aquatic and marine produce and meat, Mandis and warehouses.

– Milking machines and dairy machinery.

• The Central Excise duty is Nil by Tariff on the following goods:

– Machines for cleaning, sorting or grading seeds, grain or dried leguminous vegetables; machinery used in milling industry (flour milling, rice milling etc.) or for the working of cereals or dried leguminous vegetables (CETH 8437)

• Central excise exemption to specified equipment for preservation, storage and processing of agriculture and related sectors and exemption from service tax to the storage and warehousing of their product.

• Full exemption from excise duty to trailers and semi-trailers used in agriculture.

3. Customs Duty

• ‘Project Imports’ benefits have been extended to the following projects:

– Projects for the installation of mechanized food grain handling systems and pallet racking systems in ‘mandis’ and warehouses for food grains and sugar

– Cold storage, cold room (including for farm level pre-cooling) or industrial projects for preservation, storage or processing of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine produce and meat.

Consequently all goods imported as part of the project imports, irrespective of their tariff classification, would be entitled to uniform assessment at concessional basic customs duty of 5%.

• Full exemption from customs duty to refrigeration units required for the manufacture of refrigerated vans or trucks.
• Concessional customs duty of 5 per cent to specified agricultural machinery not manufactured in India.

4.  Service Tax

a) Exemption from service tax has been provided to services relating to Erection, Commissioning or Installation of:

– Mechanized Food Grain Handling Systems etc.

– Equipment for setting up or substantial expansion of cold storage; and

– Machinery/equipment for initial setting up or substantial expansion of units for processing of agricultural, dairy, poultry, aquatic, marine or meat products.

b) Exemption from service tax is available to transport of fruits, vegetables, eggs or milk by a goods transport agency. The scope of exemption has been expanded to include food grains and pulses.

5.  Other Tax Relief

a) Central Sales Tax reduced from 4% to 3% from April 2007.

b) All services provided by Technology Business Incubators exempted from Service Tax. Similarly, such incubates whose annual business turnover does not exceed Rs.50 lakhs exempted from Service Tax for the first three years.