Union Budget 2023: Pre Budget Wishlist Gems & Jewellery (G&J) Industry
Gems and jewellery sector in India is one of the most significant sector, in terms of contribution towards exports and also as an employment generator. Based on its potential for growth and value addition, the Government declared the gems and jewellery sector as a focus area for export promotion. India’s gems and jewellery exports clocked revenue of US$ 39.14 billion in the Financial Year 2021-22, which is a 54.13% rise from the previous year.
The Indian Government has signed a Comprehensive Economic Partnership Agreement (CEPA) with the United Arab Emirates (UAE) in March 2022 which would allow the Indian Gems and Jewellery industry to further boost exports. CEPA will provide the industry duty-free access to the UAE market. India’s Gems Jewellery Export Promotion Council (GJEPC) aims to triple its exports to the UAE post the CEPA.
The Gems and Jewellery sector expects certain relief from the Union Budget of 2023 which are as listed below:
- Extension of Scope under Section 115BAB for New Manufacturing Domestic Companies
Section 115BAB provides an option to pay income-tax @ 15% (effective tax rate of 17.16% inclusive of surcharge and cess) to any new domestic company incorporated on or after 1 October 2019 making fresh investment in manufacturing subject to certain terms and conditions. Such concessional regime benefit would be available to such companies who do not avail specified exemption / incentives available under the Income-tax Act (“IT Act”) and commence their production on or before 31 March 2024.
One of the conditions for claiming the benefit u/s 115BAB is that the company should not be engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it.
In the Gems & Jewellery sector, it is a general practice for the manufacturing concerns to undertake ancillary trading and job work activities. Such activities, though integral to the business, may not be in direct relation to the manufacturing activities carried out by the business. Consequently, the benefit under this section could not be availed by the G&J sector units on income derived from such trading and job work activities. Accordingly, it is expected to widen the scope of the section in order to enable the applicability of such concessional rate of 15% on such ancillary trading and job work activities as well.
- Rationalization of Minimum Alternate Tax (MAT) provisions for G&J units in SEZ
Many G&J units are required to pay tax on their books profits as per MAT irrespective of their profits being exempt on account of tax holiday.
In order to boost G&J sector which facilitates job creation at a large scale, the MAT can be abolished or alternatively, rates should be reduced and burden of MAT could also be gradually reduced from current level of 15% to say 10%. This would also correspond with the reduction in the corporate tax rates.
- Rationalisation of Deduction u/s 80JJAA of the IT Act in respect of employment of new employees
Section 80JJAA provides for deduction of 30% of additional employee cost for three assessment year to all assesses falling within the scope of audit u/s 44AB of the IT Act. Such benefit of deduction would be applicable in case of additional employees whose total emoluments are upto Rs. 25,000 per month. Such limit has not been revised since the introduction of the said section vide Finance Act 2016.
In order to boost the employment in manufacturing and also service sector, the limit of emoluments could be increased to Rs. 50,000 a month. Also, as the manufacturing sector employs maximum contract labour, the benefits under this section can be extended to contract labour as well. This would enable a larger section of the G&J sector to avail the benefit of deduction thereby generating employment.
- Rationalisation of the provisions of Section 132(9B) - Stock in trade to be excluded from provisional attachment in search proceedings
The existing provisions of provisional attachment u/s 132(9B) of the IT Act, as amended by Finance Act, 2017, provide for provisional seizure of any property, which can be interpreted to include all assets including stock-in-trade. The duration of such provisional attachment can be for a period of 6 months.
Such provisional attachment of stock in trade could cripple the business, especially for the gems and Jewellery sector and which in turn would have significant ramifications not only on the India’s exports but also on India’s evolving image as a manufacturing centre under the “Make-in-India” initiative.
It is expected that stock in trade be excluded from the current provisional attachment provisions u/s 132(9B) of the IT Act. Alternatively, an exception can be carved out to provide that any bullion, jewellery or other valuable article or thing being stock in trade of the business found as a result of search shall not be seized but the authorised officer may make a note or inventory of such stock in trade of the business.
- Sale of Rough Diamonds in Special Notified Zones
Currently, only viewing but not sale of rough diamond is permitted in the “Special Notified Zone” of Mumbai. Accordingly, the mining companies which import rough diamonds in the Special Notified Zones are required to ship the goods back after viewing and then the same are re-imported by the Indian businesses who had selected the goods thus resulting in unnecessary additional costs and time without serving any useful purpose.
- Introduction of Safe Harbour Rules for G&J Sector
Safe Harbour Rules for the purpose of determination of arm’s length price were introduced in the Income Tax regime in 2015 with an intent to bring down the widespread litigations with respect to international transactions conducted between Associated Enterprises.. However, at present, such SHRs are applicable only to certain specific industry sectors such as IT & ITeS, contract research in generic pharmaceuticals, manufacture and export of core and non-core automobile components, etc.
Considering that the G&J sector is one of the most active sectors engaged contributing to the foreign reserves of the country with its ever increasing exports over the years, it is expected that the scope of SHRs be extended to G&J sector as well in order to facilitate ease of doing business and would also provide a boost to the said sector. Accordingly, the margins to be prescribed in this regard shall be realistic and in consonance with the general sectorial margins prevailing in the industry.
- Work from Home benefit to be extended to G&J Units in the SEZ and corresponding S. 10AA
The Ministry of Commerce and Industry introduced Rule 43A ‘Work from Home’ in the SEZ Rules, 2006 vide Notification No. G.S.R. 576(E) dated 14 July 2022 for employees of Information Technology / Information Technology Enabled Services as well as other travelling, travelling and offsite working employees. Considering the trending remote working scenario in today’s date due to prevalent covid cases, such work from home benefit may be extended and made applicable to the G&J units in the SEZ and S. 10AA exemption benefit may be extended to the said units.
- Threshold for mandatory requirement of PAN to be increased from Rs. 2 lakhs to Rs. 5 lakhs
At present, the purchasers are required to provide PAN for the purpose of purchase of gold of amount exceeding Rs. 2 lakhs in accordance with Rule 114B of the IT Rules. Such mandatory requirement creates issues for customers, especially in rural areas, who not possess PAN. Prior to 1st January 2016, such threshold limit for purchase of gold was set at Rs. 5 lakhs. However, the reduction in threshold has adversely affected the organised jewellery trade in value terms. Thus, such threshold for mandatory PAN requirement may be increased to Rs. 5 lakhs.