The Indian gems and jewellery sector stands poised for significant growth. However, navigating the complexities of the global market and the evolving regulatory landscape requires a supportive policy framework. This article focuses on key pre-budget expectations for the Union Budget 2025 from the perspective of Dr. Suresh Surana, CA, a leading expert in the field.
The gems and jewellery industry in India has long been a cornerstone of the country’s economy, renowned globally for its craftsmanship and cultural significance. With a history spanning millennia, the industry encompasses a wide range of activities from mining and processing of raw materials to manufacturing and export of finished products. As one of the largest employers in the country, especially of skilled and semi-skilled labour, the gem and jewellery sector plays a crucial role in both economic growth and cultural heritage preservation.
As Budget 2025 approaches, industry stakeholders are optimistic about policy measures that could address these challenges, enhance competitiveness, and solidify India’s position as a global hub for jewellery design, manufacturing, and export.
Some of the key expectations of Budget 2025, as presented by Dr. Suresh Surana, CA, are:
- Extension of Scope under Section 115BAB for New Manufacturing Domestic Companies
Section 115BAB provides an option to pay income-tax @ 15% (effective tax rate of 17.16% inclusive of surcharge and cess) to any new domestic company incorporated on or after 1 October 2019 making fresh investment in manufacturing subject to certain terms and conditions. Such concessional regime benefit would be available to such companies who do not avail specified exemption / incentives available under the Income-tax Act (IT Act) and commence their production on or before 31 March 2024.
One of the conditions for claiming the benefit u/s 115BAB is that the company should not be engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it.
In the gems & jewellery sector, it is a general practice for the manufacturing concerns to undertake ancillary trading and job work activities. Such activities, though integral to the business, may not be in direct relation to the manufacturing activities carried out by the business. Consequently, the benefit under this section could not be availed by the G&J sector units on income derived from such trading and job work activities. Accordingly, it is expected to widen the scope of the section in order to enable the applicability of such concessional rate of 15% on such ancillary trading and job work activities as well.
- Rationalisation of Deduction u/s 80JJAA of the IT Act in respect of employment of new employees
Section 80JJAA provides for deduction of 30% of additional employee cost for three assessment years to all assesses falling within the scope of audit u/s 44AB of the IT Act. Such benefit of deduction would be applicable in case of additional employees whose total emoluments are upto Rs. 25,000 per month. Such limit has not been revised since the introduction of the said section vide Finance Act 2016.
In order to boost the employment in manufacturing and also service sector, the limit of emoluments could be increased to Rs. 50,000 per month. Also, as the manufacturing sector employs maximum contract labour, the benefits under this section can be extended to contract labour as well. This would enable a larger section of the G&J sector to avail the benefit of deduction thereby generating employment.
- Addressing Challenges Related to Penalty u/s 271G
Section 271G of the Income Tax Act imposes penalties on taxpayers engaged in international or specified domestic transactions if they fail to furnish the requisite information or documents within the time prescribed under section 92D(3) of the IT Act. Such penalty under this section is imposed at 2% of the value of each international transaction or specified domestic transaction where information is not provided.
A significant challenge in the gem and jewellery sector arises from the imposition of penalties under section 271G for the non-maintenance of segmental accounts in respect of transactions with group companies versus from those with third parties. This issue persists even in cases where the transactions have been determined to be at arm’s length price.
Despite multiple rulings by the Income Tax Appellate Tribunal (ITAT) and High Courts favouring taxpayers, which have deemed the levy of such penalties as neither fair nor reasonable due to the sector’s peculiarities and practical challenges as diamonds are not standardised products, penalties continue to be imposed.
To address this, Budget 2025 is expected to provide clearer guidelines and provide relief from the strict penalty provisions under section 271G in cases where compliance with segmental accounting requirements is impractical (as diamonds are not standardised products), especially when transactions are conducted at arm’s length prices. This change would promote fairness and reduce the undue compliance burden on businesses within the sector.
- Threshold for mandatory requirement of PAN to be increased from Rs. 2 lakhs to Rs. 5 lakhs
At present, the purchasers are required to provide PAN for the purpose of purchase of gold of amount exceeding Rs. 2 lakhs in accordance with Rule 114B of the IT Rules. Such mandatory requirement creates issues for customers, especially in rural areas, who not possess PAN. Prior to 1st January 2016, such threshold limit for purchase of gold was set at Rs. 5 lakhs. However, the reduction in threshold has adversely affected the organised jewellery trade in value terms. Thus, such threshold for mandatory PAN requirement may be increased to Rs. 5 lakhs.
- Disallowance for delay in payments to Micro or Small Enterprises u/s 43B(h) may be restricted to delays beyond 90 days
The Finance Act, 2023 has amended section 43B of the IT Act with respect to the payment made to micro or small enterprises registered under MSMED Act and sub-clause (h) inserted therein. In accordance with the provision of section 43B(h) of Income Tax, 1961, if an amount payable to micro or small enterprises (registered under MSMED Act) remains outstanding beyond the period (15 days or 45 days, as applicable) specified in section 15 of MSMED Act, by the buyer, such amount is disallowed in the year of delay. However, the buyer can claim deduction in the year in which liability is actually paid under section 43B(h) of the IT Act, 1961.
Based on the current provisions, the entire amount payable to such micro or small enterprises is disallowable if it is not paid within the aforesaid timeline and is allowable in the year of payment. This provision has received mixed response as several large enterprises are reluctant to deal with micro or small enterprises particularly in businesses the credit period is much longer. As such, to achieve a balance, the disallowance may be restricted to those cases where the payment is delayed beyond a period of 90 days. This will also reduce administrative burden for the businesses.
These expectations reflect the gem and jewellery sector’s aspirations to leverage strategic opportunities and address challenges to sustain growth momentum. By addressing these priorities in the Union Budget of 2025, the government can bolster the gems and jewellery sector’s role as a key driver of economic growth, exports, and employment in India.
The views expressed in this article are those of the author’s and do not necessarily reflect the views of the GJEPC.