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Budget: Sector for capital to be treated as new investment with tax holiday
Thursday, 14 January, 2021, 08 : 00 AM [IST]
Ashwani Maindola, New Delhi
The process of Union Budget making has started with consultations between stakeholders and the Ministry of Finance. The food industry has also put forth the expectations for the next fiscal, as the Covid pandemic is waning. From revenue expenditure to taxes and facilitating investment to having food processing sector’s own credit institution, the industry has high hopes from this year’s Union Budget announcement, scheduled for February 1, 2021.

CII in its recommendations said that revenue expenditure incurred in the process of providing agricultural extension services must be entitled weighted deduction. The expenditure incurred on notified agricultural extension projects under Section 35CCC of the Income-tax Act should allow a higher weighted deduction of 200 per cent as against existing 100 per cent.

“For wheat, on one hand we have the surplus but on the other hand we are uncompetitive in the global market. Thus, there is a need to find ways of offsetting this comparative disadvantage to manage surplus and tap export markets,” said Piruz Khambatta, MD, Rasna, and member, CII National Council on Food Processing.

He said that the RoDTEP (Remission of Duties or Taxes on Export Products) Scheme will replace MEIS (Merchandise Exports from India) Scheme with effect from January 1, 2021 and the RoDTEP rates have to be finalised keeping in view the scenario so that it helps make exports competitive.

While the Ministry of Food Processing Industries has taken up execution of the ‘TOP’ scheme for effective implementation of the scheme under cluster approach necessary allocations should be made in the Union Budget 2021-22, feel experts.  

For facilitating investment in food processing industry, CII’s recommendations says
For existing food processing projects, any additional capital investment more than 50 per cent of existing book value of plant and machinery should be treated as new investments and should also be eligible for a 5-year tax holiday, under Section 80IB(11A);

Under Section 80IB (11A) of the Income Tax Act, currently new units (post 2001) in the business of processing, preservation and packaging of fruits and vegetables, meat and meat products, poultry, marine or dairy products are permitted to claim deduction from Income Tax. However, preparations and value addition of fruits and vegetables and other processed foods are not covered. To avoid ambiguity, it is suggested that instead of the word ‘processing, preservation and packing’ the word should be ‘processing, preservation, packing and preparations as well as any other value addition of fruits and vegetables or other agricrops'.

To boost the MSMEs that form a majority of the units in the food processing sector, the 25 per cent  Income Tax benefit, that was announced in the last budget to the MSMEs which have been incorporated as companies, may also be extended to the MSMEs that have been incorporated either as the Limited Liability Partnerships (LLPs) or as Partnership firms .

And to position India as the food factory to the world and promote value-added processed food products abroad, a 200 per cent deduction on expenditure incurred on promoting Indian branded food items, will help enable the realisation of the vision  for ’Brand India’.  
RoDTEP rates for food and agri products should be benchmarked appropriately to ensure competitiveness of exports.

For existing food processing projects, any capital investment should be extended 50 per cent accelerated depreciation to encourage modernisation; and the investment development allowance should be re-introduced. Accelerated depreciation has been provided upto 150 per cent to various sectors such as energy, environment, computers and textiles.

Khambatta says that a Rs 2,000 crore fund has been created under NABARD to provide affordable credit for setting-up of new or modernisation of existing food processing units in designated food parks. However limiting the funding assistance only to units in designated food parks is an inhibiting factor. It is recommended that -- Eligibility for credit under this fund should be extended to all food processing units (not only those located in the designated food parks).

Further, low interest finance and other benefits of the SAMPADA scheme of the Ministry of Food Processing Industries should be made available outside Mega Food Parks too. This will help create a level playing field for the food industry and help facilitate investments.

“As announced in the 2018-19 Union Budget, there is a need to expedite the establishment of a Bank/Financial Institution for the food processing industry,” said Khambatta.

On the other hand, Deloitte India says that the allocation for R&D in agriculture is significantly low compared with global standards. This has affected the sector’s overall productivity. Given that agriculture in India suffers from the age-old problems of productivity, quality issues, and value addition, the government should consider increasing the budget for addressing a few of these pertinent issues.

Top three tasks for this year’s budget include interest subsidy on agriculture credit for long-term loans, Crop insurance, Irrigation and Introduction of new schemes on vertical farming.
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