Which Tax Benefits Can Warehouses Claim Under Indian Govt Policies?

Introduction

India’s tax laws are complex and vary by state. Businesses entering the Indian market should carefully review local incentives to ensure they claim all available benefits.

Traders with annual turnover below INR 10 million can opt for the composition scheme under GST, which allows them to pay a simpler rate of 1% of taxable turnover. However, this does limit their eligibility to claim input credit.

The government has rolled out new incentives to encourage the development of Global Capability Centres in Tier 2 cities. These include providing a national framework for the promotion of these centers, support for airport infrastructure and cargo screening, and funding for upgradation of warehousing infrastructure in these cities.

Other new policies include a full exemption of Basic Customs Duty (BCD) on wet blue leather to promote domestic value addition, and reducing BCD to 5% on crust leather to boost exports. Also, a surcharge of up to 10% is being introduced on imports to fund social welfare schemes.

Key Tax Benefits Available for Warehouses in India

The emergence of a booming organized retail sector in India is creating demand for efficient warehousing infrastructure for perishables, including fruits and vegetables. But setting up such facilities such as a warehouse in Bhiwandi, is a costly affair, especially since they need to have backup power systems.

To ease the entry of international companies into the Indian market, the government offers several tax benefits for warehouses that offer cold chain services and manufacturing or other ancillary operations. These incentives include profit-linked tax exemptions and accelerated depreciation on assets, lowering a company’s taxable income year by year and freeing up cash for reinvestment. In addition, MOOWR provides a deferment of import duties for raw materials and semi-finished products, reducing upfront capital costs for international companies that enter the Indian market. This scheme also simplifies customs procedures and reduces paperwork requirements, allowing for faster product clearance times.

Depreciation Benefits on Warehouse Assets

Warehouses can claim depreciation for the wear and tear of their building structure, as well as plant and equipment assets. The depreciation claimed is based on the useful life of each asset, as determined by the IRS.

In addition, warehouses that are classified as manufacturing buildings may qualify for capital works deductions at a rate of 4 per cent. For warehouses built before 15 September 1987, the deduction is 2.5 per cent.

Additionally, foreign investors can take advantage of targeted production-linked incentives (PLI) available in specific sectors. The government will disperse PLI benefits based on incremental sales of goods in each sector. Foreign companies entering the market should carefully review India’s tax incentives before investing. This will ensure they get the greatest possible tax relief.

Income Tax Benefits Under Section 80-IA

Infrastructure development is vital for a country’s progress, and that is why the government offers tax incentives to certain enterprises that build and operate such projects. One such incentive is the tax holiday offered under Section 80-IA of the Income Tax Act.

This clause allows eligible businesses to claim 100% of their profits for 10 consecutive assessment years beginning the year in which they develop or begin operating their project. However, this deduction can’t be used in conjunction with other provisions of the Act, such as Section 115BAB or Section 80-IBA(5).

To qualify for this deduction, the business must be incorporated in India and engaged in the development, operation, or maintenance of infrastructure facilities. It must also be registered with the appropriate regulatory authority.

GST Benefits for Warehousing Services

Warehousing is a large storage place for products before their distribution. Warehouses are an integral part of supply chains. They examine the goods, pack them, and star them before they are distributed to customers.

Prior to GST, logistics businesses used to maintain multiple warehouses in different states so that they can avoid central sales tax (CST) levy and state entry taxes. This led to operational inefficiencies as they couldn’t utilize their warehouses at full capacity.

However, with GST, local state taxes are eliminated, which makes it easier for companies to operate their warehouses at full capacity. This will save logistics costs for companies and reduce the cost of warehousing services to consumers. This will benefit both e-commerce sellers and their buyers. It will also encourage more organized logistics players to enter the warehouse industry.

Capital Subsidies and Tax Rebates

The government offers a number of incentives that make warehouses more competitive and help them reduce operational costs. These include tax deductions on research & development and financing for the purchase of materials. Additionally, the government facilitates access to credit for manufacturers through various institutions and schemes.

State-specific tax benefits for warehousing also exist. Many states offer rebates and exemptions on registration fees, stamp duties, and property taxes. These measures can help companies save money and reduce the burden of compliance with state regulations.

The government also offers tax concessions for manufacturers located in special economic zones (SEZs). SEZ developers and units can receive income-tax exemptions of up to 100 percent in their first five years, and 50 percent on reinvested profits. This incentive is especially useful for manufacturers who rely on large exports.

State-Specific Tax Incentives for Warehouses

A person is liable to register for GST only when the aggregate turnover of his/her supply of goods and services (including the value of exempt supplies) in a financial year exceeds Rs. 20 lakhs. Is this threshold limit applicable to warehouses as well?

A business is eligible to enjoy the composition scheme if it possesses invoices/other documents evidencing payment of excise duty in respect of its stock as on the appointed date. Such credit can be availed for six months or till the stock is sold out, whichever is earlier.

A reputed company sells crockery items through its online portal. It procures these items from local manufacturers who make taxable supplies of crockery and other kitchenware. Can it claim ITC of CGST and SGST paid on these procurements?

Compliance and Documentation Required

Warehouses are required to comply with various laws and have a robust record-keeping system in place. Non-compliance can result in investigations by the tax authorities, which may span up to five years and could lead to penalties.

For claiming input tax credit (ITC), companies must have their invoices authenticated by a government-approved/authorized portal and issue an IRN and QR code against every invoice. Also, e-commerce operators must report the details of their supply to the government via the GST portal.

Small traders can opt for a composition scheme under which they have to pay GST at 1% of the turnover. This restricts their admissibility to avail of ITC. Tax deduction at source (TCS) provisions are also applicable to e-commerce operators, who have to deduct tax from the net value of their taxable supplies and report them to the government.