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Companies seek clarity on depreciation on capital goods imported to bonded warehouses

Companies seek clarity on depreciation on capital goods imported to bonded warehouses

Many companies have reached out to the government for clarity on whether depreciation can be availed on imported capital equipment for manufacturing under the bonded warehouse scheme.

The government has allowed duty-free import of raw materials and capital goods for undertaking manufacturing in customs bonded warehouses (CBWs) under this scheme introduced this year.

However, many companies are holding on to their investment plans due to lack of clarity around depreciation and some other issues, tax experts said.

These companies want the government to allow depreciation on their books against machinery imported for setting up facilities under the scheme. If depreciation is not allowed, then these firms could face higher costs and even a negative tax impact, experts said.

“While manufacturing in bonded warehouses is a very beneficial scheme for an exporter, some clarity is still missing on aspects such as depreciation on imported capital goods at the time of clearance, (and) relaxation in respect of filing bills of entries on domestic clearance,” said Rohit Jain, partner at law firm ELP.

Tax experts said regulations around depreciation under the scheme should be on a par with those prevalent under Indian regulations for facilities anywhere else in the country.

As per existing regulations, companies can claim depreciation on machines and capital goods – creating a corpus for the future and eventually leading to some tax saving as well.

Some of the companies planning to invest under the bonded warehouse scheme want a depreciation rate of 10% to be allowed so that they can write off the machines or other capital goods within ten years.

This would not be the first time exporters have come across certain tax hurdles. Recently several companies reached out to the government after the indirect tax department asked them to pay goods and services tax (GST) on their licence fees.

Companies take licences to avail certain benefits of government schemes such as Advance Authorisation and Export Promotion for Capital Goods, among others. In most cases, the tax department is asking them to cough up GST on the licence amount they paid to the government.

Under Advance Authorisation, a company can import raw materials without paying certain duties if it can demonstrate that these would be used in the final product that would eventually be exported.

The government at its end is looking to ease the hurdles. It has brought in a new scheme, Remission of Duties or Taxes on Export Products (RoDTEP) to replace some old export promotion schemes.

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