New Tax Credit Policy to give a boost to “Make in India” initiative

In order to encourage foreign as well as domestic companies to manufacture their goods in India, the Indian government had launched the “Make in India’ initiative in 2015.

The programme is expected to create more job opportunities and give a boost to Indian economy by attracting foreign investments. Moving a step ahead to strengthen this policy, the Indian government is all set to roll out a tax credit system through GST in 2016 which is likely to ease the tax burden making manufacturing, a lucrative option.

The policy, which could come into effect after the release of budget this year, could lead to a 100% credit for taxes paid on inputs. Currently, the credit policy that’s in force is restrictive in nature with credit of taxes paid on inputs being available only for eligible inputs. All the other taxes are not taken into account while claiming credit.

The issues with the credit mechanism in the current tax regime often lead to litigation and disputes in indirect taxes, delay or denial of credit along with increase in the cost of goods produced for the end user.

However, the proposed tax regime will bring about clarity leading to lesser chances of dispute and litigation. It will also lower the tax burden thereby benefitting the end user/consumer.

In addition, the new policy will act in favour of the economy by reviving the manufacturing industry; which at present is contracting. The idea of the proposed policy is to loosen tax restrictions and allow credit of input taxes, except a few.

The enforcement of this policy will thus, simplify the tax credit mechanism. Further, the credit rules as set out under this policy may act as a template for postulating goods and services tax (GST) credit rules.

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