The market for chemicals and Fertilizers is a turbulent one. Upstream shifts in the cost and availability of both conventional and unconventional sources are forcing companies to evaluate geographic and product portfolios. Macroeconomic forces are changing the demand patterns for some chemicals and Fertilizers to developing countries like India and accelerating demand for certain specialty chemicals and Fertilizers . To each client engagement, we bring deep compliance experience and the ability to draw lessons from other industries that have experienced similar levels of turbulence.

We serve entities related to:

  • Fertilizers
  • Pesticides
  • Crop protection chemicals
  • Pharmacy Chemicals.
  • Non Toxic Chemicals

Few Fiscal Incentives for Chemical and Fertilizer Industry

Various fiscal incentives are provided by the Government of India for promoting investment in the Chemical and Fertilizer sector. Some of the key incentives are outlined below:

Income Tax

Section 35AD provides for an investment linked incentive to assesse carrying on the specified business.

Deduction under section 35AD to the extent of 100% is available to assesse carrying on the  following “Specified Business”.

Specified Business Includes:-

Production of fertilizer in India, such business should commence its operations in a new plant or in newly installed capacity in existing plant for production of fertilizer.

Capital expenditure eligible for Deduction:

  1. 100% Deduction shall be allowed in respect of any expenditure of capital nature incurred wholly and exclusively for the purpose of any specified business carried on by him during the PY in which such expenditure is incurred by him.
  2. Therefore, capital expenditure incurred after the commencement of specified business is allowed as deduction to the extent of 100% of such expenditure, in the year in which such expenditure is incurred.
  3. Revenue expenditure will also be allowed as 100% deduction.

Expenditure incurred prior to commencement of operations also eligible for deduction:

For Specified Business :

Expenditure incurred wholly and exclusively, for the purpose of any specified business, shall be allowed as deduction to the extent of 100% of such expenditure, during the PY in which he commences operations of his specified business if :

  1. the expenditure is incurred prior to the commencement of its operations ; and
  2. the amount is capitalized in the books of account of the assesse on the date of commencement of its operations.

Therefore, expenditure incurred before the commencement of specified business shall be allowed as deduction to the extent of 100% of such expenditure, in the PY in which business is commenced provided such expenditure has been capitalized in the books of account.

GST on Chemical and Fertilizers

  • Almost every predictable impact of GST on the Indian industrial sector looks positive, especially for the chemicals industry. Chemicals businesses in India have long suffered the wrath of added taxations on their production capacity as well as their consumption demands.
  • The existing taxations have impelled the rise in the production costs of manufacturing vital chemicals, which has resulted in the price-hike of the end products and made such goods unaffordable for gross consumption.
  • That’s why the GST Act is trusted to be seminal for the unbarred progress of the Indian chemicals industry in the years to come.
  • The aforementioned benefits of lowered production costs and reduction of transactional tax rates will have a major influence on the growth of paints and construction chemicals industry.
  • The booming real estate sector will continue to generate demand in construction chemicals market, but the implementation of GST will make sure that the construction chemicals retailers are not edged away from the sales profits. The absence of warehousing or supply chain costs will help maintain the affordable prices and promote the consumption of chemicals. Non-uniformity of VAT rates will be irrelevant as GST will be implied at a common rate upon every product sold in the chemicals industry.
  • Lowered transit time, availability of chemical materials at the desired time, and hassle-free transportation systems are also observed as the indirect advantages of implementing the GST in the Indian chemical businesses.

The formulations industry which hitherto attracted indirect tax of about 9 % has since been subjected to GST rate of 12%. For the Chemical industry, the rationalisation of tax rates at or below the 18% rate has been positive. This move has ensured minimal disruption to the Industry in terms of pricing the products.