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
for 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
granting full exemption from the Payment of central
excise duty on a specified output and thereafter slabwise 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:

CONT

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 31 st 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 disturbance
ii) 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.

MEASURES FOR PROMOTION AND

DEVELOPMENT 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 FOR

MARKETING 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)