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Fiscal Incentives for Food Processing Sector
From time to time, Government of India has announced a number of fiscal incentives for promoting investment in food processing sector.  The major incentives given by the Government as under:-

  1. Income Tax

Deduction for expenditure: Under Section 35-AD of the Income tax Act 1961, deduction for expenditure incurred on investment is allowed if this investment is wholly and exclusively for the purpose of any specified business (Details given below).  However, this deduction is allowed only for the investment made in the previous year and prior to commencement of its operations.

Businesses allowed 150% deduction (provided the taxpayer has commenced its business on or after 01.04.2012)

  1. Setting up and operating a cold chain facility
  2. Setting up and operating warehousing facility for storage of agricultural produce;

Business allowed 100% deduction 

  1. Bee-keeping and production of honey and beeswax
  2. Setting up and operating a warehousing facility for storage of sugar

 

Deduction of Tax from profit: Under Section 80 IB(11A) of the Income Tax Act, 1961, new units (ie not  formed by splitting up or by way of reconstruction of an existing business)  in the business of processing, preservations and packaging of fruits or vegetables, meat & meat product, poultry, marine or dairy products are permitted to claim deduction from Income tax.
This tax incentive is available as 100% tax exemption for the first 5 years’ of operation, and after that, at the rate of 25% of the profits being exempted from tax; 30% in case of a company. This benefit is available only for ten years provided that such business had commenced with effect from 1.04.2001.
If any business relating to meat, meat products, poultry, marine products or dairy products has started after 1.4.2009, the above benefits would be available, but not to the units operating in such business before 01.04.2009.  

  1. Service Tax

(i) Negative List : Under Finance Act, 1994, Service Tax is not leviable on items contained in the Negative List.  These services are as follow:-
Services including processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market.
(Ref. Section 66 D(d) (iii) Chapter V of the Finance Act, 1994)
(ii) Exempted category:
Ministry of Finance vide notification dated 20-6-2012 has given exemption of Service Tax for following services:-

  1. Construction, Erection, Commissioning or installation of original works pertaining to post-harvest storage infrastructure for agricultural produce including Cold storages for such purposes.
  2. Mechanized Food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages; and
  3. Services provided by a goods transport agency by way of transportation of fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage.
  4. Services of Loading, unloading, packing, storage or warehousing of agricultural produce.

(Ref. Service Tax notification No. 25/2012-Service Tax dated 20th June 2012 issued under Section  93  Chapter V of the Finance Act, 1994- Power to grant exemption from service tax.)

  1. Customs Duty
  1. Government has extended Project Imports’ benefits to the following projects:
  1. Projects for the installation of mechanized food grain handling systems and pallet racking systems in ‘Mandis’ and Warehouses for food grains and sugar;
  2. 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 related to Food Processing, imported as part of the project, irrespective of their tariff classification, would be entitled to uniform assessment at concessional basic customs duty. (Ref. Notification No 12/2012 dated 17.3.2012)

  1. Customs duty on Hazelnuts has been reduced from 30%  to 10%.  (Ref. Notification No 12/2013-Customs dated 1.3.2013)
  1. Customs Duty on De-hulled Oat grains has been reduced from 30% to 15%. (Ref. Notification No 12/2013-Customs dated 1.3.2013)
  1. Central Excise Duty

Food Products:
In order to promote food processing industry, the Government has given concessions in Central Excise Duty from time to time.  Duty structure of some of the processed food items are as under:-

  1. Nil Duty in Milk, Milk Products (Chapter 4), Vegetables (Chapter 7), Nuts and Fruits, fresh & Dried (Chapter 8).
  2. As against standard excise rate of 12%, Processed Fruits & Vegetables (Chapter 20) carries a merit rate of 2% without CENVAT or 6% with CENVAT.
  3. Soya Milk Drinks, Flavoured Milk of Animal origin also carries a duty of 2% without CENVAT or 6% with CENVAT.
  4. Excise duty on “Tapioca Starch manufactured and captively consumed within the factory of their production, in the manufacture of Tapioca Sago (Sabudana)” and excise duty on Tapioca Sago (Sabudana) has been reduced to nil in the Budget 2013-14.  (Notification No 12/2013-Central Excise 1.3.2013)

Food processing machineries:

  1. All refrigeration machineries and Parts used for installation of  cold storage, cold room or refrigerated vehicle, for the preservation, storage, transport or processing of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine produce and meat are exempted from Excise Duty.
  2. Pasteuring, drying, evaporating, etc machinery used in Dairy sector  is exempted from Excise Duty.

[Notification No 12/2012-Central Excise dated 17.3.2012]

Fiscal Incentives for Cold Chain
Income Tax

Deduction for expenditure: Under Section 35-AD of the Income tax Act 1961, deduction for expenditure incurred on investment is allowed if this investment is wholly and exclusively for the purpose of  (i) setting up and operating a cold chain facility; and (ii)  setting up and operating warehousing facility for storage of agricultural produce. This deduction is allowed to the extent of 150%  provided the taxpayer has commenced its business on or after 01.04.2012 [Para no 144 of Union Budget 2012-13 speech and inserted by the Finance Act, 2012] 
Excise Duty

All refrigeration machineries and Parts used for installation of  cold storage, cold room or refrigerated vehicle, for the preservation, storage, transport or processing of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine produce and meat under Tariff Head: Chapter 84 are exempted from Excise Duty. [Notification No 12/2012-Central Excise dated 17.3.2012]


Fiscal Incentives indicated are illustrative. Details regarding the incentives and their duty implications can be ascertained from the relevant Act and Notifications issued by the Department of Revenue, Ministry of Finance.