The government is contemplating offering tax incentives to companies in the manufacturing sector, including tax deductions on emoluments paid to new employees, to encourage firms to step up hiring and create jobs under its Make in India initiative.

The government said it is inviting more suggestions by 2 December on other incentives that it can offer to boost employment generation in the manufacturing sector.

It put up suggestions that it has received internally from various government departments and other stakeholders on the mygov.in website.

Suggestions being considered by the government include financial incentives, tax incentives under the Income-tax Act, 1961, and subsidies for equipping employees with job skills, and upgrading and improving employment exchanges.

Proposals include tax deductions on several accounts, such as salaries paid to employees whose total emoluments are less than Rs.6 lakh per year on hirings exceeding a threshold that’s less than the 10% workforce expansion for which the tax break is available now.

This incentive will be offered for three years from the time a new employee is hired.

The workforce expansion threshold is proposed to be interpreted liberally; if a company exceeds the threshold in a particular year, it would be carried forward to support eligibility for the tax break in a subsequent year when it falls short of the threshold.

The National Democratic Alliance government, which came to power last year promising to step up employment generation for the millions who enter the job market every year, has made the manufacturing sector a key priority.

The Make in India initiative is aimed at attracting investment in manufacturing.

A government statement said economic growth and the Make in India programme’s prospects would depend on steps it takes to ensure that the investors are incentivized for creating jobs and upgrading the skills of India’s workforce.

“The Government of India is taking several measures for promoting the growth of the manufacturing sector in India. The Make in India campaign has been initiated with the view of driving investment in this sector by creating an environment suitable for sustained growth of manufacturing, which will lead to all-round economic benefits including employment generation and income growth,” it added.

Ajay Dua, a former secretary with the ministry of industry and commerce, said that given the manufacturing sector has not been able to increase direct employment to the extent it had been expected to, despite the availability of cheaper capital, the proposed tax breaks are worth trying.

“This shows the nature of exemptions are changing. The government seems to be trying to achieve the goal of employment growth through fiscal measures, which is desirable,” he added.

The government is also examining the possibility of changing an existing condition which requires a worker to have been on the payroll of a company for at least 300 days in a year for the employer to receive the tax break; the number of days may be reduced to 240 days.

It is also willing to provide weighted tax deduction for training and skill development, and examine the possibility of reducing an employer’s contribution to social security benefits of new employees for a limited period under which the employer’s contribution could rise from 0% to 100% in a phased manner.

It has also proposed sharing data and results of government recruitment examinations to other employers if the applicants agree.

Opening government-controlled employment exchanges to public-private partnerships or to the private sector by amending the Employment Exchange Act is also an option.