Applying for Tax Incentives in India: Frequently Asked Questions

Tax incentives are available to businesses in India depending on the economic activity, industry, location, and size of the firm.

Below, we answer frequently asked questions on applying for investment incentives and tax breaks in India.

When should investors apply for tax incentives?

Investors become eligible for most of India’s tax breaks and incentives after registering with the Ministry of Corporate Affairs. Tax incentives tied to specific targets– such as hiring over 50 Indian employees – often require additional permissions from related ministries.

Can investors apply for multiple tax incentives?

India offers tax relief at both the federal and state level. Further, additional incentives are available to investors in specific sectors, while India’s special economic zones offer their own comprehensive tax relief. However, not all tax benefits offered in India are mutually inclusive.

Availing the benefits of one incentive may disqualify investors from applying to others. Businesses entering the Indian market should review the country’s tax incentives carefully, and ensure their entry plan provides them with the greatest tax relief possible.

Can India retroactively withdraw tax incentives?

Yes, but this is comparatively rare. When an investor fails to satisfy the eligibility conditions for the incentive, authorities may revoke those benefits.

  Beyond this, however, investors should note the more common divergence between the fanfare surrounding a new incentive on the one hand, and the difficulty in realizing them on the other. Tax relief promised under the Startup India initiative is a good example: up until December 2017, only 74 startups secured tax relief from the government.

Which government body oversees tax incentives?

Specific federal tax incentives are overseen by the government body declaring them. For example, income tax incentives are administered by the Ministry of Finance while goods and services tax (GST) incentives are overseen by the Central Board of Excise and Customs.

For tax incentives issued by individual states, the related state’s directorate of industries is usually the body in charge of granting benefits.

What can investors do to ensure their projects qualify for incentives?

A clear strategy for securing incentives should be built into any investor’s game plan. India offers many attractive tax benefits; however, some of these schemes can be buried in bureaucracy, while others can be exaggerated in official announcements.

We advise working with a local professional services firm that is familiar with India’s regulatory environment. These firms can help businesses identify all relevant tax breaks and incentives and draft a step- by-step guide outlining the application process. 

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