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NISHITH DESAI ASSOCIATES

TAX LAWS AFFECTING THE FOOD INDUSTRY

1. Income Tax Act, 1961


It is tax on income imposed by the Central Government.
Residents in India are taxed on their worldwide income.
Non- residents are taxed on Indian source of income.
Income Tax rebate is allowed, 100% of profits for 5 years and 25% of profits for the next
5 years, for new industries to process, preserve and package fruits and vegetables.

2. Custom Duty
Custom duty is the indirect tax levied by the Central government on imports of
machinery and/or goods from foreign countries.
Customs duty on import of food processing and packing machineries and their parts is
chargeable in the range from 7.5% to 10%.
Customs duty on import of various types of alcohol ranges from 100% to 150% of the
transaction value of imported alcohol, that is, the price actually paid or payable for the
goods when sold for export to India for delivery at the time and place of import.
Cigarrettes have a customs duty rate of 100%. Both cigarettes and alcohol are subject
to Additional Customs Duty (ACD) and education cess. Customs duty on tobacco
stands at Rs. 70 per kg.

3. Excise Duty
Central Excise duty is an indirect tax levied on those goods which are manufactured in
India and are meant for home consumption.
Excise duty for the food and beverages sector ranges from 8% to 16%
Various fiscal incentives for the food processing sector have led to significant reduction
in excise duty. Duty on condensed milk, ice cream, preparations of meat, fish and
poultry, pectins and Pectates, used as a gelling agent in jams and jellies, pasta, yeast
and biscuits whose retail price does not exceed Rs. 100 are now abolished.

4. Sales Tax / Value Added Tax (VAT)


Sales tax / VAT is levied by states on the sale of goods within its territory.
Central Sales Tax is applicable in case of the sale of goods in the course of inter-state
trade or commerce.

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5. CENVAT
Duty imposed by Central Government on the manufacture of goods.
No excise duty is levied on fruits and vegetable products but there is an excise duty
levied on potable alcohol.
In generality the excise duty is 12% on the industry plus applicable cess.
Excise duty is now levied on condensed milk put up in unit containers, peanut butter
and other specific goods.
Excise duty has increased for certain other items such as mineral water, aerated water,
etc. to 18% from the existing 12%.
Excise duty has also been increased for tobacco products.
6. Service Tax
Under the current service tax regime, all services are taxable unless exempt.
The effective rate of service tax is 14% (including Education Cess).
Exempted services include: Services provided in relation to serving of food or
beverages by a restaurant, eating joint or a mess, other than those having (i) the facility
of air-conditioning or central air-heating in any part of the establishment, at any time
during the year, and (ii) a license to serve alcoholic beverages.