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Tamil Nadu, India – “Manufacturing Powerhouse, Attracting Entrepreneurship”

published on 6 July 2022 | reading time approx. 5 minutes

Today the world is looking at India, in particular Tamil Nadu, as a manufacturing powerhouse. The south Indian state comes with a natural geographical advantage wherein its surrounded by the Bay of Bengal in the east, the Gulf of Mannar and the Palk Strait in the southeast, and the Indian Ocean to its south.

Tamil Nadu is the second largest State economy in India and accounts for 9.47 percent of India’s Gross Domestic Product (GDP) in Financial Year 2020-21.

The Government of Tamil Nadu, rather than being just a regulator and tax collector, is actively undertaking several measures to attract investments and has also left no stone unturned to foster the growth of manufacturing sector by introducing various incentives. The state provides a robust Industrial policy that predominantly advocates investments leading up the value chain in manufacturing and providing employment to residents of the State.

This article aims to look at the various provisions of incentives offered by the Tamil Nadu (TN) Government for establishing new projects or expanding existing industrial units, industrial parks, R&D projects, warehousing, and logistics. Investments made from January 1, 2021, will be considered eligible for availing incentives.

Overview of TN Industrial Policy

Eligibility

For the purpose of administering the fiscal incentives,

1. the following four investment commitment ranges have been identified:

Figures in Indian Rupee (INR)

* 1 Euro = India Rupees 85 per Euro – Figures in EUROs

Project Category	Investment Commitment Range (in Million Euros)*		Investment Period
Project Category	Minimum	Maximum	Investment Period
Sub-Large	5.8	35	4 Years
Large	35	58	4 Years
Mega	58	588	4 Years
Ultra Mega	Above 588		7 Years

2. the districts of the state are classified in category A, B & C

Investment Promotion Subsidy

The Project shall be eligible for an Investment Promotion Subsidy of up to 40 percent of eligible investments in the given districts, through one of the following options:

Options	Remarks
Reimbursement on State Taxes on Final Products (or)	Largely applicable to Projects that manufacture final products with traceable end-use in the Stat of Tamil Nadu.
Flexible Capital Subsidy (or)	Subsidy flexible with respect to the investment factor inputs such as labour, capital, and technology.
Fixed Capital Subsidy (or)	Flat % of incentive on investment.
Turnover-based Subsidy.	Only for Mega & Ultra Mega Projects with minimum Employment of 2000 jobs within the Investment Period.

Investment proposals from companies having relocation plans may be provided a higher set of incentives on a case-to-case basis beyond the normal incentives offered.

Imported Machinery

Relocation of industrial projects would include the relocation of machinery from the country of relocation. Thus, new, and second-hand machinery can be included under Eligible Fixed Assets.

Transport Subsidy for Relocation

Transport and logistics are a significant operating expenditure for companies. To facilitate the transition of foreign companies to Tamil Nadu, 75 percent of the cost incurred on transportation and logistics towards the relocation of capital goods from the source country to Tamil Nadu within the investment period, shall be reimbursed. It will be subject to a total limit of 1.15 million Euros.

Land Cost Subsidy

For eligible projects in designated industrial park, land allotment will be made at a 10 percent concessional rate in “A” & “B” districts and at a 50 percent concessional rate in “C” districts for land up to 20 percent of EFA.

For private land in “C” districts, 50 percent subsidy will be offered on cost of land as per guideline value up to an extent of 50 acres and subject to land cost not exceeding 20 percent of EFA and a cap of 0.12 million Euros, provided that at least 70 percent of the land is used for manufacturing operations.

In case the investor chooses to avail land cost subsidy, the land will be excluded from Eligible Fixed Assets for the purpose of Investment Promotion Subsidy.

R&D Training Incentive

R&D Training Incentive of 115 Euros per person per month can be availed for 12 months.

This incentive is intended for personnel engaged in core R&D for employees.

Standard Incentives

The following incentives shall also be available to Large, Mega and Ultra-Mega projects:

Electricity Tax Incentive: New or expansion manufacturing projects will be given an electricity tax exemption for a period of 5 years on power purchased from the State-Owned entities or generated and consumed from captive sources.
Stamp Duty Incentive: 50 percent Concession on Stamp duty payable on lease or purchase of land/shed/buildings meant for industrial use shall be offered in parks promoted by Govt. Agencies in “A” & “B” Category Districts.
In all “C” districts, 100 percent Concession on Stamp duty payable on lease or purchase of land/shed/buildings meant for industrial use shall be offered in parks promoted by Govt. Agencies.
Green Industry Incentive: Industrial projects undertaking green initiatives for recycling waste and water for industrial use and sustainable energy usage, coupled with online monitoring (wherever applicable), shall be eligible for a 25 percent subsidy on the cost of setting up such environmental protection infrastructure in the following solution areas subject to a limit of 0.12 million Euros.
Quality Certification Incentive: Industrial projects any other Indian or international certification as notified from time to time, shall be given a subsidy of 50 percent of the total cost incurred for obtaining the certification, as certified by the Chartered Accountant, limited to 30 thousand Euros for the period of investment.
Intellectual Property Creation Incentive: The State Government will reimburse 50 percent of the expenditure incurred by the Project subject to a maximum of 35 thousand Euros for the period of investment for a patent, copyright, trademarks, Geographical Indicators registration.

Summary of Incentives Category wise

Figures in Indian Rupee (INR)

Special Considerations in TN Policy

1. Projects over 10 Years
Projects in existence in Tamil Nadu for over 10 years

will be considered on a case-to-case basis.
will be given suitable extra benefits for expansion projects over and above the normal structured package of incentives, subject to investing the minimum level of investment.

2. Supply Chain

TN Policy provides a discretion to approve higher incentives/concessions and relax the conditions mentioned in exceptional circumstances for deserving cases, giving due weightage to investment, direct and indirect employment generated, and potential for attracting further investment through vendors and ancillaries on case-to-case basis.

Double Engine to Growth

While the Union Government in India has progressively liberalized Foreign Direct Investment in many sectors like defense, oil refineries, telecom, power exchanges, stock exchanges and insurance. Extended a concessional corporate tax rate of 15 percent for hard core newly incorporated Manufacturing companies in India.

Many subsequent clearances (land, labour, water, electricity, environment) occur at state level, beyond the transport and legal infrastructure provided.

Nevertheless, Project which are eligible for financial assistance, Tax concession from Government of India, Incentives sought under TN Policy shall be in addition and independent of its eligibility.

Overall, the approach of the Union and Tamil Nadu Government has been pro-actively encouraging investments and boosting economic growth.

These moves to incentivize new manufacturing companies not only does it promote the Make-in-India campaign, also attracts entrepreneurship in the manufacturing sector.