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Explained: When is a film declared tax free, and what are the benefits?

The Kashmir Files has been declared tax-free in several states. What qualifies a film to be declared tax-free? How much cheaper is it to watch a film that is tax-free? Which other films have been made tax free in the country?

The Kashmir Files, directed by Vivek Ranjan Agnihotri, is about the exodus of Kashmiri Pandits from the Valley. (Representational Image)

With The Kashmir Files emerging as a crowd-puller and receiving political support, several states, including Haryana, Gujarat, Madhya Pradesh, Goa, Karnataka, Tripura, Uttar Pradesh, and Uttarakhand, have declared the movie tax-free.

The film, directed by Vivek Ranjan Agnihotri, is about the exodus of Kashmiri Pandits from the Valley during the early phase of the armed insurgency. It released on March 11. Making the film tax-free means tickets are cheaper, and many more people are able to watch it.

What qualifies a film to be declared tax-free?

Savita Raj Hiremath, one of the producers of Jhund, a film directed by Nagraj Manjule and starring Amitabh Bachchan that released earlier this month, recently expressed her disappointment on social media over her “important” film with “a big message that has received tremendous acclaim”, not being made tax-free.

The fact is there are no fixed criteria for a film to claim or enjoy tax exemption. The decision to give up its claim on tax revenues is taken by state governments on a film-by-film basis, and on the particular government’s assessment of the importance of the issues that the film deals with.

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As a general rule, when a film deals with a socially-relevant and inspiring subject, state governments may at times exempt it from tax with the intention of making it accessible to a wider audience.

Exactly how much cheaper is it to watch a film that is tax-free compared with other films?

Before the Goods and Services Tax (GST) came into effect in 2017, state governments levied entertainment tax, which varied from state to state, and was higher in states like Maharashtra and Uttar Pradesh. When a film was declared tax-free, the entertainment tax was waived, making tickets significantly cheaper.

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In the GST regime, movie tickets initially attracted a GST of 28 per cent. Subsequently, two slabs were introduced — 12 per cent GST on tickets costing less than Rs 100, and 18 per cent on more expensive tickets. The revenue is shared between the central and state governments. So when a state declares a film tax free now, only the SGST component is waived, while the CGST continues to be levied. Depending on the ticket price, the exemption could be 6 per cent or 9 per cent.

Filmmakers look at a tax free tag as an endorsement from the government, and a boost to the film’s image and publicity, even if it does not make a huge difference to the money that the film makes.

Rejecting the demand by BJP lawmakers to make The Kashmir Files tax free, Maharashtra Deputy Chief Minister Ajit Pawar pointed out that if the Centre were to waive GST on the film, it would apply to the whole country — otherwise, it would only be the state forgoing its share of revenue from the film.

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Which other films have been made tax free in the country?

Traditionally, widely-acclaimed and significant films such as Gandhi (1982), used to be declared tax free.

In 2016, two socially relevant films, Dangal and Neerja, were made tax free in several states. Dangal is about two sisters from rural Haryana making it big in the world of wrestling; Neerja is based on the true story of Neerja Bhanot, the head purser on Pan Am Flight 73 who was shot dead by hijackers while helping passengers escape from the aircraft in Karachi in 1986.

Among the other films that have been made tax free in several states in recent years are Toilet: Ek Prem Katha (2017), which backed efforts to stop open defecation; Chhapaak (2020), the story of an acid attack victim’s fight for justice; Mary Kom (2014), the biopic of the world champion and boxing legend; Taare Zameen Par (2007), the story of a dyslexic child; Mardaani (2014), which is about a policewoman’s fight against human trafficking; and Nil Battey Sannata (2015), a feelgood film about the power of hope.

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First published on: 20-03-2022 at 03:58:43 pm
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