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Pankaj: Welcome to our third episode of the series on incentive policies by EY India Insights podcast. I am your host, Pankaj Surana, Director at Indirect Tax practice, EY India. I am based out of Ahmedabad.

Last time, we talked about state incentives available to the tourism sector across various states. Today, we are going to discuss state incentives available in Gujarat across various sectors.

Gujarat is one of the preferred destinations when it comes to infrastructure, connectivity, single window approval, progressive policies, presence of GIFT City, and more.

To discuss this topic in depth, we have Bhavesh Thakkar with us. Bhavesh is an Indirect Tax Partner in EY India, with a special focus on incentives and subsidies. He has assisted many companies in obtaining incentives across states and sectors. Welcome, Bhavesh. Thanks for being on the podcast again.

Bhavesh: Thank you, Pankaj. It is great to be back on this series.

Pankaj: Can you give a broad perspective of the state incentives in Gujarat?

Bhavesh: There are various policies in Gujarat when it comes to state incentives, and one has to select the right policy basis industry and sector. In the manufacturing sector, for example, there are policies which provide incentives like interest subsidy, refund of taxes, and capital subsidy, and there are sector-specific policies as well. Further, there are separate policies for service sectors like tourism and IT/ ITeS. Additionally, there are various other policies like research and development, industrial parks, etc.

Pankaj: That is interesting for new and existing businesses that propose to invest in Gujarat. Can you briefly cover some of the key policies of the state?

Bhavesh: Certainly. Let us start with the Gujarat Aatmanirbhar Scheme, which is applicable to all manufacturing units, whether MSME, large or mega under separate schemes and commencing production within the policy period.

New/expansion units are eligible under the scheme, subject to specified conditions. There are also thrust sectors prescribed where incentives are higher as compared to the general sector.

Incentives available under the scheme also depend upon project location, as the entire state is divided into three categories basis development in the taluka. So, the incentives available under the scheme are:

• 7% interest subsidy on term loan for a specified period with an upper cap of up to 12% of eligible investment.
• 80%-100% net SGST reimbursement for a specified period with an upper cap of up to 80% of eligible investment.
• 100% reimbursement of employer’s contribution under EPF for new employees subject to an upper cap.
  
• 100% electricity duty exemption for five years as per the Gujarat Electricity Duty Act,1958. Typically, electricity duty rate is 15% of consumption charges.
  

In addition to the aforesaid four incentives, other incentives are also available specific to MSMEs and mega projects, like stamp duty, etc.

Procedurally, there are three applications to be filed under the scheme – registration application, provisional eligibility and final eligibility. Refund applications are to be filed on a quarterly basis.

Pankaj: It appears that the scheme is very attractive for manufacturing units that have a term loan and higher local sales in Gujarat.

Bhavesh: That is correct. A maximum of 80%-90% of the eligible project cost can be claimed back as incentives depending upon the sector, location, local sales, term loan, etc.

Pankaj: That is a good return on investment for investors and becomes one of the key factors to be considered while setting up the project. Do sector-specific policies in Gujarat offer better incentives as compared to Aatmanirbhar Scheme?

Bhavesh: Yes, Pankaj, and I would give a perspective here through one of the sector-specific policies for electronic products, which offers better incentive as compared to the Aatmanirbhar Scheme. 

The Gujarat Electronics Policy is applicable to new and existing units for production of specified electronic products. One of the key incentives available is a 20% capital subsidy as a percentage of eligible investment with an upper cap of INR200 crore. There is also 15% incremental capital subsidy for projects above INR1,000 crore.

The best part of this policy as compared to the Aatmanirbhar Scheme is that here the investor would get a capital subsidy and the incentive is not dependent on factors like local sales in Gujarat or a term loan, which is in the case of Aatmanirbhar Scheme. In addition to capital subsidy, other incentives available under the Electronics Policy are refund of stamp duty, interest subsidy, EPF reimbursement, etc.

Pankaj: I must say, this is a very attractive policy for manufacturing in electronics sector. Lately, we have seen that states are also focusing on giving incentives to the services sector. What is your experience in this sector in Gujarat?

Bhavesh: That is correct, Pankaj. Gujarat is also promoting services sector by offering incentives through sector-specific policies for IT/ITeS and tourism.

Pankaj: I have also heard that Gujarat has the best IT/ ITeS policy in India. Is it so?

Bhavesh: Currently, if we compare the IT/ITeS policies across states, Gujarat’s policy is one of the best in India. The policy is applicable to new units and existing units undertaking expansion as defined in the policy.

The incentives under the IT/ITeS policy are very unique as they offer capital expenditure (capex) support, operational expenditure (opex) support and special incentives:

• One-time capital subsidy of 25% as a percentage of eligible investment with an upper cap.
• 15% opex subsidy for five years as percentage of eligible opex with an upper cap. Eligible opex includes five expenses which are generally incurred by an IT/ ITeS unit like lease rentals, bandwidth expenditure, cloud rental expenditure, power tariff expenditure and patent expenditure.
• Additional special incentives for five years, which include employment generation incentives, interest subsidy, EPF reimbursement and 100% electricity duty refund.
  

Pankaj: I must say this is an extremely good policy for IT/ ITeS sector and shows the intent of the state government to attracting the right talent and skills in the state.

Bhavesh: Absolutely. GIFT city is a classic example of this. Many large companies have set up their operations.

Pankaj: True. I guess there would be similar focus on the tourism sector also. How is Gujarat’s Tourism Policy?

Bhavesh: Gujarat’s Tourism Policy has also identified certain tourist locations such as Statue of Unity and Dwarka for providing incentives to tourism projects set up in these areas. Tourism projects/units include hotels, resorts, wellness resorts, and theme parks; both new as well as expansion projects are covered.

From an incentives perspective, the biggest positive of this policy is that it offers 20% capital subsidy to hotels and resorts and 15% capital subsidy to other projects like theme parks. Capital subsidy would vary depending upon the star rating of the hotel/resort. In addition to capital subsidy, there is reimbursement of stamp duty, registration fee, exemption from electricity duty, and other smaller incentives as defined in the Policy.

Pankaj: That is an excellent policy and it shows the broad perspective of the state government towards promoting various industries and sectors in the state.

Bhavesh: Yes, indeed.

Pankaj: I guess incentives also come with certain conditions to be fulfilled. Correct?

Bhavesh: Yes, Pankaj. Each of these policies requires certain conditions to be fulfilled like local employment related condition, operative period for commencing production, minimum number of years for which an eligible unit needs to operate, etc.

Pankaj: Yes, and it becomes crucial too for the investors. Any other aspects which should be taken care of?

Bhavesh: I would say the timeline to file the applications so that the eligible unit does not miss on the incentives. Each policy has its own set of timelines and procedures and investors should file the applications to avail the incentives before the timelines defined in the policies and reap the benefits available.

Pankaj: Thank you, Bhavesh. I am sure our listeners now have a good understanding of various state incentive policies of Gujarat and they may even reach out to any one of us for any clarifications. I would like to thank you for your valuable time and for providing insightful thoughts to our listeners.

Bhavesh: Thanks to you as well for being a great host.

Pankaj: With this, we have come to an end of this episode. There are other episodes in the pipeline that will focus on other states or sector-specific policies. Please do let us know in case you want to hear about a specific topic. Thank you for listening. This is Pankaj, your host, signing off.

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