UNIT -5 Taxation benefits to ssi ,various incentives &subsidies

By:Aparna Mendiratta

Initiatives

• The Ministry of Micro, Small and Medium Enterprises is the nodal Ministry for formulation of policies, programmes and schemes, their implementation and related co-ordination, for the promotion and development of small scale industries in India. The role of the Ministry is to assist the States in their efforts for the growth of the small scale sector, by enhancing their competitiveness in an increasingly liberalized economy. It is assisted by an attached office and two public sector enterprise, namely:-

Micro, Small and Medium Enterprises Development Organization (MSME-DO)

National Small Industries Corporation Ltd (NSIC) Khadi and Village Industries Commission (KVIC) Coir Board

• Micro, Small and Medium Enterprises Development Organization (MSME-DO) :- the Office of the Development Commissioner (Micro, Small and Medium Enterprises) [earlier known as the O/o the DC (SSI)] is also known as Micro, Small and Medium Enterprises-Development Organization (MSME-DO). It is the apex body for assisting the Government in formulating, coordinating, implementing and monitoring policies and programmes for micro, small and medium enterprises (MSMEs) in the country. MSME-DO provides a comprehensive range of common facilities, technology support services, marketing assistance, entrepreneurial development support, etc.

• Coir Board :- is a statutory body, established under the Coir Industry Act, 1953, for the promotion and development of coir industry in India as well as for uplifting the living conditions of the workers engaged in this industry.

• National Small Industries Corporation Ltd (NSIC) :- was established by the Government with a view to promoting, aiding and fostering the growth of micro, small and medium enterprises in the country, with a focus on commercial aspect of their operations. It implements several schemes to help the MSMEs in the areas of raw material procurement, product marketing, credit rating, acquisition of technologies, adoption of improved management practices, etc

Schemes by NSIC:

• Bill Financing• Working Capital Finance• Export Development Finance• Equipment Leasing Scheme• Raw Materials Procurement Support• Marketing Assistance Programme and Exports

Assistance; • Stores Purchase Programme• Single Point Registration Scheme and other services.

Central Govt. Schemes

1) Tax Holiday: Exempted from the payment of Income tax under section 80J of the act on

their profits upto 6% (7.5 % for companies) from the total income of the units in the assessment years in which the unit began manufacutre.This benefit is available upto 5 years from the commencement of production.

DIRECT TAXES With effect from 1st April 2000, deduction in respect of profits and gains fo

r new SSIs is available under Sec. 80IB. The deduction allowed is 25% of profits for 10 years. For units in the NE & specified backward States, the deduction allowed is 100% for first five years & 25% for the next five years.

2) Composite Loan Scheme: The Scheme envisages sanction and disbursement of working

capital and term loan together from a single agency. The limit for composite loans has been enhanced to Rs. 25 lakhs in the Comprehensive Policy Package.

The Scheme is operated both by banks and financial institutions. State Financial Corporations under Single Window Scheme provide working capital loan along with term loan to new tiny and small scale sector units so as to overcome the initial difficulties and delays faced by them to start production expeditiously.

3) INDUSTRIAL ESTATE PROGRAMME

• Industrial Estate Programme in India is perhaps the biggest undertaken by any developing country. The programme started in 1952 when the first such estate was established at Hadapsar in Maharashtra.

• The main objective of the programme is to encourage and support the creation, expansion and modernisation of SSI through provision of factory accommodation, common service facilities and assistance and servicing throughout, all stages of establishment and operation and developing sub-contracting relationships within the small scale and large scale industries and specialised manufacturing activities.

• Subsequently, the programme has also assumed the role of regional development through provision of built-in factory accommodation with the requisite facilities and services in semi-urban, rural and backward areas.

4) Factoring Services• Factoring services make available the much neeeded working

capital to Small Scale Enterprises and is likely to induce customers to make timely payments for fear of adverse "customer-image" in the market.

• Factoring services are being increasingly set up, which is a good sign. Some private factoring companies have also come up. Government of India intends to bring forward legislation to promote factoring without recourse for the SSI Sector.

5) Exemption from Excise: Government of India has provided a major relief by granti

ng full exemption from the Payment of central excise duty on a specified output and thereafter slab-wise concessions of certain specified items in 1978.

Exemption for the small scale sector – a threshold exemption from excise duty is given to units with a turnover of less than 1.5 crore rupees (INR 15 million).

CONT…Small scale units should satisfy the following conditions for the of tax benefit eligibility of Tax Benefit.•They should not have been formed by the splitting or reconstruction of an existing unit.•They should employ 10 or more wore workers without power .Development Rebate:In respect of new plant or machinery other than office appliance or road transport vehicles of a small unit , which is wholly used for the purpose of production , the SSI unit is eligible for development rebate under section 33 , in addition to normal depreciation.

It is given as follows:

1.In the case of plant and machinery ,35% of the actual cost , if it were installed before 1 st April 1970 , and 25% of such cost if it were installed after 31st March 1970.2.Where the plant and machinery was installed after 31st March 1967, being an asset representing expenditure of a capital nature on scientific research related to the business carried on by a unit, development rebate is given at the specified rates.

Rehabilitation Allowance: This is granted to small scale units, under section 33B,whose business is discontinued due to:

i) Riot or civil disturbanceii) Flood, typhoon, hurriance ,cyclone, earthquake or other natuaral calamities.iii) Accidental fire or explosion.iv) Action by an enemy.

The reestablished ,reconstructed or revived unit is allowed a deduction of a sum by way of rehabilitation allowance ,equivalent to 60% of the amount of the deduction allowable the unit.

CONT…

Investment allowance:The investment allowance was introduced in 1976 in place of depreciation allowance. One of the most valuable tax concessions offered to SSI units under the Income Tax is the investment allowance.One of the most important allowance granted under section 32A.It is allowed at the rate of 25% of the cost of acquisition of new plant or machinery installed. The investment allowance is available for the articles or things except certain low priority items specified in the 11th schedule. However SSI units are eligible for the allowance irrespective o whether they are used for the purpose of business or construction , manufacture or production of low priority items listed in the 11th schedule.

CONT…

MEASURES FOR PROMOTION ANDDEVELOPMENT OF SSIs

1. RESERVATION POLICY

Reservation of items for exclusive manufacture in SSI sector has been one

of the important policy measures for promoting and protecting this sector

against competition from medium/large/ multinational companies.

2. GOVERNMENT'S PURCHASE PREFERENCE POLICY FOR SSI

PRODUCTS

Government stores purchase programme was initiated to assist

small-scale industries in obtaining a fair share of the total purchases made

by the Government and its departments. ( railway and defense)

2. GOVERNMENT'S PURCHASE PREFERENCE POLICY FOR

SSI PRODUCTS

Government stores purchase programme was initiated to

assist small-scale industries in obtaining a fair share of the total

purchases made by the Government and its departments.

3. GOVERNMENT'S PRICE PREFERENCE POLICY FORMARKETING SSI PRODUCTS

a) Price preference up to 15% in case of selected items.

b) No registration fee.

c) A consortium to channelize and identify markets for the

products of SSIs both in

India and abroad.

d) Availability of Tender Sets free of cost.

e) Price preference up to 15% over the lowest quotation of the

large scale units (on merits)