Tax Exemption for Food Processing Industry

It is due to absence of modern cold storage facilities that India has incurred post-harvest fruits and vegetable losses. Focus on this sector will boost food availability, reduce inflation and increase the overall GDP of economy. India is one of the leading exporter of food products and the Ministry of Food Processing Industry (MOFPI) is implementing a number of schemes to promote this sector. In this article, we review the list of tax exemptions provided for the food processing industry in India.

Service Tax

Services provided in relation to loading, unloading, packing, storage or warehousing of agricultural produce is not taxable under service tax. According to Notification No. 25/2012 dated 20/06/2012 (AS AMENDED), sectors like food processing industries and cold-chain facilitating centers have been given exemption from service tax. The two main areas pertaining to the food processing industry enjoying exemption are: Services by means of construction, erection, commissioning or infrastructure of original works pertaining to:

Post-harvest storage infrastructure for the agricultural produce inclusive of a cold storages for such reasons
Mechanized food grain handling system, machinery or equipment, for units processing agricultural produce such as food staff with the exception of alcoholic beverages.

Services by way of transportation by rail or vessel from one place in India to another and by a suitable Goods Transport Agency of the following goods namely:

Agricultural Produce
Milk, Salt & food grain including flours, pulses and rice.
Services by means of loading, unloading, Planning, Storage or warehousing of rice, cotton, ginned or bailed

Central Excise

In terms of central excise, particular goods intended to be utilized for the installation of a cold storage, cold room or refrigerated vehicle for the presentation, storage/transport of agricultural, apiary, agricultural, dairy, poultry, aquatic as well as marine produce and meat are exempt from central excise. The exemption is subject to condition that the goods are cleared for the intended purpose and the process laid down in the CE (Removal of goods at a concessional rate of duty for the manufacture of Excisable goods) Rules, 2016 according to Notification No. 20/2016 dated 01/03/2016 that is followed. In addition to the above, there are other exemptions also provided to this industry having a lower percentage of excise duty as follows:

Nil excise duty on milk, milk products, vegetables, nuts & fruits, fresh and dried
Compared to a standard excise duty of 12% on processed fruits & vegetables carrying a merit rate of 2% without CENVAT or 6% with CENVAT
Soya Milk Drinks, flavored Milk of Animal origin also are charged a duty of 2% without CENVAT or 6% with CENVAT

Customs Duty

Government has provided the following exemptions on customs duty to provide an impetus to the food processing industry in India:

Projects for the reason of installation of mechanized food grain handling systems and pallet racking in ‘Mandis’ as well as warehouses for food grains and sugar;
Cold storage, cold room inclusive of farm level pre-cooling or industrial projects for the reasons of preservation, storage or processing of agricultural, apiary, horticultural, diary, poultry, aquatic and marine produce as well as meat.

Click here to know more about the

process for starting a food processing business or subsidy for cold chain.

Back to Learn

Frequently Asked Questions

Common questions about Tax Exemptions for Food Processing Industry in India.

The government has provided several tax exemptions to promote the food processing industry in India. Services related to loading, unloading, packing, storage, or warehousing of agricultural produce are exempted from service tax. Additionally, construction, erection, commissioning, or infrastructure of post-harvest storage facilities, cold storages, and mechanized food grain handling systems are also exempt from service tax. Certain goods used for the installation of cold storage, cold rooms, or refrigerated vehicles for agricultural produce are exempt from central excise duty.

The exemption from service tax on services related to loading, unloading, packing, storage, or warehousing of agricultural produce helps reduce costs for the food processing industry. This can lead to lower prices for consumers and increased competitiveness for Indian food products in domestic and international markets. It also encourages investment in infrastructure like cold storages and mechanized handling systems, which can reduce post-harvest losses and improve food availability.

Certain goods intended for the installation of cold storage, cold rooms, or refrigerated vehicles for the preservation, storage, or transport of agricultural, apiary, horticultural, dairy, poultry, aquatic, marine produce, and meat are exempt from central excise duty. This exemption is subject to conditions laid down in the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2016.

The government has provided customs duty exemptions for projects related to the installation of mechanized food grain handling systems, pallet racking in 'Mandis' and warehouses for food grains and sugar. It has also exempted customs duty for cold storage, cold rooms, and industrial projects for the preservation, storage, or processing of agricultural, apiary, horticultural, dairy, poultry, aquatic, marine produce, and meat. These exemptions help reduce the cost of setting up and expanding food processing infrastructure.

The tax exemptions aim to promote the food processing industry, which can help reduce post-harvest losses, increase food availability, and control inflation. A thriving food processing industry can also boost exports, contributing to the overall GDP of the economy. By reducing costs and encouraging investment in infrastructure like cold storages and mechanized handling systems, the government hopes to strengthen this crucial sector.

Yes, the Ministry of Food Processing Industries (MOFPI) is implementing various schemes to promote the food processing sector in India. These include subsidies, grants, and other incentives for setting up food processing units, cold chain infrastructure, and modernizing food processing technologies. The article mentions that the reader can click a link to know more about the process for starting a food processing business or availing subsidies for cold chain infrastructure.

The article mentions that processed fruits and vegetables carry a lower excise duty of 2% without CENVAT or 6% with CENVAT, compared to the standard rate of 12%. This lower duty is likely aimed at making processed fruits and vegetables more affordable for consumers and encouraging value addition in the sector. It can also support the growth of the fruit and vegetable processing industry in India.

Yes, the article mentions that milk, milk products, and soya milk drinks flavored with milk of animal origin are subject to a lower excise duty of 2% without CENVAT or 6% with CENVAT. This is likely to support the dairy processing industry and make dairy products more affordable for consumers.

The article mentions that services related to the transportation of agricultural produce, milk, salt, and food grains including flours, pulses, and rice by rail, vessel, or a Goods Transport Agency are exempt from service tax. This exemption can help reduce the cost of transporting raw materials and finished products for the food processing industry, supporting its growth and competitiveness.

Yes, the article mentions that the exemption from central excise duty on certain goods for cold storage or refrigerated vehicles is subject to the condition that the goods are cleared for the intended purpose and the process laid down in the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2016 is followed. This suggests that there may be specific procedures or documentation required to avail the exemptions.