The Modi government is considering a proposal to reinstate concessional corporate tax rates for new manufacturing units to revive private investment and counter slowing growth.
Ahead of the 2025-26 Budget, the finance ministry is discussing the possibility of slashing the tax rate to 15–18 per cent for companies establishing greenfield and brownfield projects, according to officials familiar with the matter.
The corporate tax rate for domestic companies stands at 22 per cent at present.
A lower rate could make India a more attractive destination for global manufacturers, aligning with the “China+1” strategy, where companies diversify their supply chains away from Beijing.
The concessional 15 per cent tax regime was introduced in 2019 under Section 115BAB of the Income Tax Act. It aimed to boost manufacturing by offering globally competitive rates to companies incorporated after October 1, 2019, and commencing production by March 31, 2023.
However, the scheme saw limited adoption due to disruptions caused by the Covid-19 pandemic and subsequent lockdowns.
In response, the government extended the deadline to March 31, 2024, but chose not to prolong it further after lukewarm industry interest.
Now, the proposal is back on the table with a possible adjustment to a slightly higher rate of 18 per cent, plus surcharges, reflecting a more pragmatic approach to balance incentives with fiscal considerations.
The proposal comes amid concerns about India’s slowing growth trajectory, projected at 6.4 per cent for this fiscal year and below 7 per cent for 2025-26.
“Extending the concessional tax rate would provide an opportunity for investors considering India as a potential destination,” said Rohinton Sidhwa, partner at Deloitte India. “The measure has been pivotal in promoting economic goals and attracting foreign investments in the past.”
Aseem Mowar, tax partner at EY India, highlighted the scheme’s strategic importance in competing with countries such as China, Japan and Vietnam.
“Reintroducing this tax benefit would bolster India’s manufacturing sector, generate jobs and enhance revenue, even with a slightly higher rate of 18 per cent,” he said.
Mowar suggested including infrastructure sectors such as EV charging and smart city projects, which could reduce reliance on fuel imports.
He also advocated for extending benefits to global capability centers (GCCs), which have seen significant growth in India over the past five years.
“GCCs play a crucial role in India’s economic landscape, with an estimated 1,700 centers generating $64.6 million in revenue. This number is expected to grow to 2,200 by 2030.” Including GCCs under the concessional tax regime could boost India’s appeal as a hub for MNCs.
The reintroduction of concessional tax rates has been a consistent demand from industry groups such as Assocham.
In its pre-budget memorandum, the association urged the government to revive the scheme, citing its potential to promote exports and support the “China+1” strategy.
“The benefit would make India more competitive and attract multinational groups to set up manufacturing hubs here,” Assocham said. It emphasised the importance of aligning tax policies with global trends to maintain India’s attractiveness as an investment destination.
Geopolitical shifts have also strengthened the case for such incentives. With the US and other nations reducing their reliance on China, India stands to gain.
The finance ministry and the Prime Minister’s Office are expected to finalise the proposal in the coming weeks before the budget announcement on February 1.