#1Deloitte. Production Linked Incentives Scheme: Leap towards Atmanirbhar Bharat 21 May 2021#2PLI - Concept and Coverage 2#3Introduction of Sector specific Production Linked Incentives (PLI) scheme Objective Improve domestic manufacturing footprint (incentives outlay of USD 26.67 Bn) Incentives WTO Compliant Compatible with the WTO as the quantum of support is not linked to the export Activity profile Flexibility No restriction on availing benefits under other schemes/ State policies Cash subsidy at prescribed % over 5 to 6 years period Both domestic and exports sales eligible for incentives Short application window 2 to 3 months for application post notification 3#4Key parameters for consideration Base year affixed for incremental sales and performance appraisal Prescribed growth rate during the tenure of scheme Minimum investment thresholds Greenfield and brownfield facilities 3g Employment, domestic value addition, existing sales volume Investment by Contract manufacturers 4#5Sector and Product Coverage ACC Batteries Automobile and Auto Components Laptop/ Notebooks, Servers, IoT Devices, Specified Computer Hardware, Semiconductor Fab, Display Fab Ready to Eat/Ready to Cook (RTE/ RTC), Mozzarella Cheese, Processed Fruits & Vegetables, Organic eggs, egg products and poultry meat, Marine Products SN Sector Product Line 1 Advance Chemistry Cell (ACC) Battery 2 Automobiles & Auto Components 3 Electronic/Technology Products* 4 Food Products 5 High Efficiency Solar PV Modules Solar PVs 6 Pharmaceuticals drugs 7 Speciality Steel 8 Telecom & Networking Products 9 Textile Products 10 White Goods Category 1- Complex generic drugs, Patented drugs or drugs nearing patent expiry, Special empty capsules, Biopharmaceuticals, Cell based or gene therapy products, Orphan drugs, Complex excipients Category 2 - Active Pharma Ingredients (APIs) /Key Starting Materials (KSMs) and Drug Intermediaries (DIs) Category 3 - Anti-cancer drugs, Anti diabetic drugs, Anti Infective drugs, In-vitro Diagnostic Devices (IVDs), Auto- immune drugs, Cardiovascular drugs, Repurposed Drugs, Psychotropic drugs and Anti-Retroviral drugs, Phytopharmaceuticals, Other drugs not manufactured in India, Other drugs as approved High Strength Steel, Steel Rails, Coated Steel and Ally Steel Bars & Rods Core Transmission Equipment, 4G/5G Equipment, Internet of Things (IoT) Access Devices and Other Wireless Equipment, Enterprise equipment (Switches, Router, Access & Customer Premises Equipment (CPE)), Next Generation Radio Access Network and Wireless Equipment Man-Made Fiber Segment and Technical Textiles Air conditioners and LED * Basis Press Release dated 11 November 2020 (by PIB Delhi) 5#6PLI Scheme Status Sector Advance Chemistry Cell (ACC) Battery Specialty Steel Ministry Department of Heavy Industry Ministry of Steel Incentives Outlay (USD billion) 2.41 0.84 Food Products Ministry of Food Processing Industries 1.45 Pharmaceuticals drugs Department of Pharmaceuticals 0.93 (Phase I) + 1.99 (Phase II) Electronic/Technology Products Telecom & Networking Products Ministry of Electronics and Information Technology Department of Telecommunications 0.67 1.63 Status Scheme approved by Cabinet, detailed guidelines awaited Scheme approved by Cabinet, detailed guidelines awaited Guidelines issued and application window open until June 17, 2021 Application window extended and open until 28 July 2021 Scheme notified (last date for applications was 30 April 2021) Scheme notified 6#7PLI Scheme Status Incentives Outlay Sector Ministry (USD billion) High Efficiency Solar PV Modules Ministry of New and Renewable Energy 0.59 Automobiles & Auto Components Textiles Status Scheme approved by Cabinet; Guidelines issued by Ministry Department of Heavy Industry 7.60 Awaiting approval by Cabinet. Ministry of Textiles 1.42 Awaiting approval by Cabinet White Goods (ACs & LED) Department for Promotion of Industry and Internal Trade 0.83 Mobile phones and electronic components Ministry of Electronics and Information Technology 5.46 Medical devices Department of Pharmaceuticals 0.46 Scheme notified (guidelines awaited) Round II in progress (application window was open till March 31, 2021) Scheme extended for applications till July 28, 2021 7#8State Incentives 8#9Summary of the state government incentive schemes Fiscal Key benefits • Capital subsidy linked to investment outlay • Training subsidy linked to job creation • • Non-Fiscal Single window clearance for permits Infrastructure benefits viz roads, water supply, IT infrastructure etc Demographic overview States offering moderate incentives Delhi, Haryana, Punjab, Rajasthan, Uttar Pradesh, Himachal Pradesh, Madhya Pradesh Gross or Net GST refund on supply of goods or services Exemption or concession from stamp duty on transfer or lease of land Concessional rates of power tariff • Concessional land • Interest free loans Sector specific policies Most of the above benefits open to negotiation by the government in large investment projects • Economic activity States offering higher incentives Gujarat, Maharashtra, Karnataka, Kerala, Tamil Nadu, Andhra Pradesh, Telangana, North East • Quantum of investment • Employment generation Key drivers for incentives negotiation • Status of the project (MSME, large, mega, ultra mega, etc • Investment period • Location or district of proposed operations 9#10State Incentives: Illustrative areas for consideration Parameters to consider while negotiating or applying for incentives GST linked subsidy or fixed capital subsidy. In case of GST linked incentives, ability to obtain Gross GST vis-à-vis Net GST, based on expected consumption in the State Investment, production and employment commitments provided by the company and consequences of not meeting those commitments - recovery of past incentives by Upfront agreement on exclusions and inclusions for eligible fixed assets depending on the items of investment Ability to leverage new investments to amend or review the existing MoU, incentive period, investment period etc. Consider alternative States offering better incentives 33 the Government Implementation process documentation, certification, separate GST registration for covered investments etc. Treatment of intangible assets such as royalty, technical know how, pre- operative expenses etc; domestic or imported used assets 10#11Corporate tax benefits India - An attractive investment destination 11#12Corporate tax benefits | Tax regime for new manufacturing companies A snapshot • Tax rate of 15% plus surcharge and cess [i.e. effective rate of 17.16%] No Minimum Alternate Tax (MAT) Lower tax rate vis-à-vis select other jurisdictions - China: 25% Vietnam / Taiwan: 20% Philippines: 25% Attractive tax regime for New manufacturing companies in India • Incorporated on or after 1 October 2019 Company engaged only in manufacture of any article or thing and research in relation to, or distribution of, such article or thing manufactured by it Commencing manufacture on or before 31 March 2023 Not formed by splitting up or reconstruction of an existing business; and company does not use any machinery or plant previously used for any purpose Certain incentives not to be claimed (e.g. additional depreciation) Regime to be chosen at the time of filing the first tax return; cannot be withdrawn subsequently for any year Domestic transfer pricing provisions to apply Other incentives Income-tax benefits on employment generation available [deduction for 30% of additional employment cost for 3 years, subject to conditions] 12 12#13Corporate tax benefits | Tax regime for new manufacturing companies Key considerations vis-à-vis eligibility and PLI Interdependencies with existing businesses Which incomes are incidental to manufacturing B. Holistic analysis What qualifies as 'manufacture' Expansion of existing unit vs. new set up ါး Other commercial factors 13#14Corporate tax benefits | Beneficial tax framework . Abolition of dividend distribution tax-Dividend taxable for the shareholder • No cascading effect - Dividends received not taxable for an Indian company, if it onward pays dividend in prescribed time A Access to lower dividend tax rates under the treaty (as low as 5% / 10%) • Ease of tax credit in parent company jurisdiction Reduction of group tax cost Dividend received from foreign subsidiaries is taxable at a concessional rate of 15%* Special tax rate of 5%* in case of foreign lenders, for interest on monies borrowed before 1 July 2023 (subject to conditions) Strong treaty network with approx. 94 nations 000 ARA Long term capital gains taxable at a reduced rate of 10%*, in case of non- resident shareholders (subject conditions and treaty benefit, if any) No obligation to file an income- tax return by non-resident companies in case of royalty, technical service fee, dividend or interest income, if it has been subjected to WHT as per domestic tax law India - a destination of choice for setting up manufacturing operations *plus applicable surcharge and cess 14#15Deloitte. 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