Food-processing offers promise, incentives for entrepreneurs in India

Question: On returning to India I want to start a business which has long term growth prospects. It would be preferable if some tax benefit is also available for the same. Do you have any thoughts in this regard?

ANSWER: With a population of 1.4 billion, India offers maximum opportunities in any type of food-related businesses. Recently, a food processing exhibition in Delhi showcased the sustainability of food processing as a large quantity of agricultural produce is still wasted every year. Further, the export potential of the food processing industry is unlimited. Exports of processed food have gone up from Rs.300 billion in 2014 to Rs1 trillion in the last financial year. This industry is one of the largest employers in the registered manufacturing sector having a share of more than 12 per cent in total employment. Since 2014 the food processing industry has attracted foreign direct investment of more than Rs430 billion. The small and medium scale sector has also contributed to the growth of this industry as seed capital and bank loans have been extended with a rising trend every year. Profits and gains derived from the business of processing, preservation and packaging of fruits or vegetables are exempt from income tax to the extent of 100 per cent for the first five years of commencing production and thereafter 30 per cent of the profits are exempt for a further period of five years.

I am told that Indian companies are now permitted to list their shares on foreign stock exchanges. Are many Indian companies prepared to do so?

ANSWER: At present Indian companies that are listed on stock exchanges in India are permitted to list global depository receipts on foreign stock exchanges. A few Indian companies have listed the shares of Special Purpose Acquisition Companies. Indian companies have been given the permission earlier this year to list their shares and stocks on the GIFT City exchange. On October 30, this year, a notification was issued under the Companies Act, 2013 permitting Indian companies to directly list their shares on overseas stock exchanges. Foreign investors dealing in shares of Indian companies listed on global exchanges will not have to pay any capital gains tax in India. However, resident Indians and Indian companies will be liable to pay tax in India in respect of profits made on shares traded globally. Indian companies are likely to move cautiously before taking the step to list their shares on global markets for two reasons. One, barring a few reputed Indian companies, others are not well-known abroad to the overseas investing public. Second, companies listed on foreign bourses will have to undertake measures for statutory compliances which are far more stringent than what they are used to in India.

I am a dormant partner in a firm with my brother in Kolkata carrying on a trading business. The firm is registered with the Goods & Services Tax authorities. A demand for GST was raised six months ago which my brother did not respond to inadvertently. Is the tax authority legally right in freezing the bank account of the firm?

ANSWER: Your brother should have been vigilant because assessment orders and notices for demand of tax are now issued online through the common GST portal. The authorities also send e-mails and text messages informing the tax payer of an assessment order and a pending demand notice. Once the assessment order is received, an appeal can be filed within three months. Since your brother has not done so, the assessment order has crystallised and the tax demand has become final. Recently the Supreme Court of India held that a writ petition cannot be filed to challenge the assessment order and the notice of demand simply because the appeal was not filed in time. The tax therefore has to be paid and failure to do so will justify freezing of the bank account.

HP Ranina is a practising lawyer, specialising in tax and exchange management laws of India.