Tax holiday
Topic: Taxation: Direct and Indirect Taxes, GST and Global Tax Issues · NCERT: Class 10, Ch 4 "Globalisation and the Indian Economy"
Meaning
A tax holiday is a temporary exemption from tax for new firms or new investments. For a fixed number of years the unit pays little or no income tax. Governments use it to attract investment to chosen places or sectors. The cost is revenue given up, which is a form of tax expenditure (a hidden subsidy delivered through the tax system).
Example
SEZ units got an income-tax holiday under Sec. 10AA, but only units that started operations by 31 March 2020 qualify. Budget 2026-27 extended the holiday for IFSC units from 10 to 20 years. It also gave a holiday up to 2047 for cloud services provided from data centres in India (verify current).
Don't confuse with
- Global minimum tax (Pillar Two): this sets a 15% floor on the effective tax rate of large multinational groups. Long tax holidays for such groups must fit within this floor. Otherwise another country may collect the tax India gave up.
Related concepts
- Tax incidence
- Laffer curve
- Tax buoyancy
- Tax elasticity
- Tax-to-GDP ratio
- Tax expenditure
- Tax incentives