ADVANTAGES OF INCENTIVES AND SUBSIDIES

1) They act as a motivational force for entrepreneurs.2) They encourage the entrepreneurs to start the

industries in backward areas.3) Industrial development happens uniformly in all

regions.4) Increase the ability of entrepreneurs to face

competition successfully.5) Reduce the overall problems faced by

entrepreneurs.

PROBLEMS OF INCENTIVES AND SUBSIDIES

1) Empirical studies reveal that the incentives and subsidies are being highly misused.

2) Incentives and subsidies turned out to be grounds for dishonesty.

3) They have given scope for favouritism and rampant corruption.

4) They have become the seeds for unethical business practises.

5) Resulted in financial drain on the exchequer.

SCHEMES OF INCENTIVES AND SUBSIDIES

• INCENTIVES IN OPERATION• Interest free loans• Exemption from property tax,income tax, sales tax.• Allotment of developed ,constructed sheds.• Allotment of controlled or subsidised raw materials.• Concessional water.• Special facilities for import of raw materials.• Taxation benefits, excise concessions.

SCHEMES CONTD…………

• SUBSIDIES IN OPERATION• Subsidy for R AND D works.• Capital investment subsidy.• Transport subsidy.• Subsidy for power generations.• Subsidies for artisans and traditional industries.• Subsidy for buying test equipment.• Subsidy for market studies.• Subsidy for quality standards.

CENTRAL INVESTMENT SUBSIDY SCHEME

Introduced in 1971 and modified from time to time.Scheme is for encouraging setting up industries in

centrally notified backward areas.For setting up industries in category A backward areas

subsidy is allowed at the rate of 25% subject to a maximum of Rs 25 lakhs.

Entrepreneurs who set up plants in category B and C district are legible for 20% and 15% subsidy subject to a maximum of 20lakhs and 15lakhs respectively.

TRANSPORT SUBSIDY SCHEME

• The scheme was introduced in 1971 and is applicable to remote and inaccessible areas.

• Identified promotional institutions which transact business on behalf of small, village, cottage industries are also eligible for transport subsidy.

• Transport subsidy is paid on the transport costs of industrial raw materials which are brought into finished goods which are taken out of these areas to identified rail heads.

• It is available at the rate of 90% for movement of raw materials within the NE region.

INCENTIVES AND FACILITIES TO EXPORTERS

• DUTY DRAWBACKFor a product exported from India the manufacturersHave to pay import duties on raw materials imported And excise duty on the items manufactured in India.The customs and central excise duty drawback rules Provide for refund of such duties on the export being Completed.Duty drawback is allowed only for items whose rawMaterials used are duty paid

Duty drawback contd…….

There are two types of rates of drawback 1) All industry rate—is applied to all exporters alike.2) Brand rate—is applicable to only certain manufacturers.It is

fixed on furnishing information to the authorities by the exporter.Brand rate can also be fixed where all industry rate does not exist.

If there is delay in disbursement of duty drawback, The govt has formulated the duty drawback scheme Under which the exporter can get duty free finance from His bank on export eligible goods, by providing a Provisional certificate as to his entitlement of drawback.

Duty exemption scheme

This scheme enables the exporter to import materials without payment of customs duty.

The licence issued under this scheme is known as Advance Licence . The items allowed to be imported

under this are such as to be used in the manufacture of goods to be exported from India.

The licence will bear a suitable export obligation.No duty drawback is allowed on the products exported/Supplied under this scheme.

EXPORT PROMOTION CAPITAL GOODS SCHEME

• Under this scheme capital goods may be imported at a concessional rate of customs duty of 25% of goods value with an export obligation of 3 times the value to be achieved within 4 years.

• The duty will be further reduced to 15% of value where the export obligation is 4 times the value and within a period of 5 years.

• A manufacturer or exporter for a period not less • Than 3 years is eligible for this scheme.• Other exporters may also be considered on merit.

EXCISE REBATE• Finished goods which are subject to excise duty for home

consumption are exempted from the duty when they are exported.• The exporters can also avail of this facility in following methods

where finished goods are excisable—• Export Under Bond—In this the exporter has to execute a bond in

favour of the Central Excise Authorities. No excise need be then paid by the

• Exporter.• Refund of Duty—If the duty is already paid after export is made the

exporter should make a claim with the central excise authorities. After verification of the claim

• The refund of the central excise is made.

CONCEPT OF HIRE-PURCHASE

There are two types of purchases 1) when full payment is made at one time 2) when the payment is deferred

There are further two systems of deferred payments 1) Hire purchase system 2) Installment payment system

Hire purchase is an agreement under which the owner called the hire vendor gives delivery of goods to the buyer called the hire purchaser who pays the price in certain no of installments.The hire vendor retains the ownership of the goods with him until the last installment is paid.

The amount of installments paid before the last installment are treated as hire charges for the use of goods during that period, hence it is called hire-purchase.

PROCEDURE FOR HIRE PURCHASE

Hire purchase involves certain procedureAn agreement called the hire purchase agreement is made between

the parties involved.It includes1) The hire purchase price of the goods2) The cash price of the goods.3) The date of commencement of the agreement.4) The name of the goods with its sufficient identity.5) The amount if any to be paid at the time of signing the agreement.6) The signatures of the parties involved in the agreement.If the hire purchase transaction is financed by a financial institution

then 3 parties are involved in the agreement hire vendor, hire purchaser and the financial institution.

TAXATION BENEFITS TO SSI UNITS

• Small Industries are characterised by their small resource capital

• The first years seem to be very critical ones, as they have to incur expenses but the returns are either nil or nominal.

• Hence they need support to tide over the crucial initial stage to enable them to survive.

• Hence the government supports them by way of tax benefits.• Either the tax is exempted or concession in tax liability is

provided.• This helps them to accumulate capital and plough back

profits

TAX EXEMPTION

• Under the income tax act, new industrial undertakings including ssi units are exempted from payment of income tax on their profits subject to a maximum of 6% per annum of their capital employed.

• This exemption in tax is allowed for a period of five years from the commencement of production.

• The unit has to satisfy two conditions to avail tax exemption• The unit should not have been formed by splitting or

reconstitution of an existing unit.• The unit should employ ten or more workers in a

manufacturing process with power.

TAX CONCESSIONS TO SSIs IN RURAL AREAS

• The tax payers under the section 80 of the income tax act are entitled to a deduction of 20% of the profits derived by running ssi units in rural areas.

• The deduction is allowed for a period of ten years from the commencement of manufacturing activity.

• This tax benefit is not allowed to ssi units engaged in mining activity.

TAX CONCESSIONS CONTD………..

• The ssi units have to fulfill the following conditions• The ssi unit is not formed by splitting or reconstruction of a

business already in existence.• It is not formed by the transfer of machinery or plant

previously used for any purpose.• The accounts of the unit are audited by a chartered

accountant.• It employs 10 or more workers in manufacturing process

carried on with power.• The unit does not claim a simultaneous deduction under

section 80 of the income tax act.

TAX CONCESSIONS TO SSI UNITS IN BACKWARD AREAS

• The planning commission in 1970 has declared 247 out of 435 districts as backward areas to provide them special incentives to establish industries in these areas.

• These units in backward areas are entitled to a deduction of 20% of their profits from their gross total income.

• This deduction is allowed for a period of 10 years from commencement.

• If a ssi unit is established in a non backward area and later shifts to a backward area the unit is allowed this deduction on the profits earned by the unit after shifting in the backward area for a period of ten years.

Tax concessions contd……………

• The ssi unit has to complete the following conditions to avail this tax benefit

• The unit must be established on or after 31 December 1970

• It employs atleast 10 workers in a manufacturing process carried on with power.

• Or atleast 20 workers in a manufacturing process without power.

SSI REGISTRATION

• The main purpose of Registration is to maintain statistics and to maintain a roll of such units for the purpose of providing incentives and support ventures.

• All states have generally adopted the uniform registration procedures as per the guidelines.

BENEFITS OF REGISTERING

• The registration scheme has no statutory basis, units normally get registered to avail some benefits, incentives or support given either by central or state government.

• Centre offers a no of incentives like excise exemption, exemption under direct tax laws, statutory support such as reservation and interest on delayed payments act.

• Both centre and states target their incentives and support packages to units registered with them.

OBJECTIVES OF THE REGISTRATION SCHEME

• To enumerate and maintain a roll of small industries to which the package of incentives and support are targeted.

• To provide a certificate enabling the units to avail statutory benefits mainly in terms of protection.

• To serve the purpose of collection of statistics.• To create nodal centres at the centre, state and

district levels to promote ssi units.

FEATURES OF THE SCHEME

• DIC is the primary registering centre.• Registration is voluntary not compulsary.• Two types of registration is done in all states.

First a provisional registration certificate is given, and after the commencement of production a permanent registration certificate is given.

• PRC is normally valid for 5 years.

PROVISIONAL REGISTRATION CERTIFICATE

• This is given for the pre-operative period and enables the units to obtain the term loans and working capital from financial institutions under priority sector lending.

• Obtain facilities for accommodation, land and other approvals etc.

• Obtain various necessary NOCs and clearances from regulatory bodies such as pollution control board, labour regulations etc.

PERMANENT REGISTRATION CERTIFICATE

• This enables the unit to get the foll incentives• Income tax and sales tax exemption as per state

government policy.• Incentives and concessions in power tariff etc.• Price and purchase preference for goods produced.• Availability of raw materials depending on existing

policy.• Permanent registration of tiny units shouls be

renewed after 5 years.

PROCEDURE FOR REGISTRATION

• A unit can apply for PRC for any item that does not require industrial license.

• When the unit applies for PRC in the prescribed application form, no field enquiry is done and PRC is issued.

• PRC is valid for five years. If the entrepreneur is unable to set up the unit in this period he can apply afresh at the end of the five years period.

• Once the unit commences production it has to apply for the permanent registration certificate.

Basis of Evaluation

• The unit should have obtained all necessary clearances eg drug license under drug control order, NOC from pollution control board etc

• Unit does not violate any locational restrictions in force, at the time of evaluation.

• Value of plant and machinery is within prescribed limits.

• Unit is not owned controlled or subsidiary of any other industrial undertaking.

DE REGISTRATION

• A SSI unit can violate the regulations in following ways which can make it liable for de-registration

• It crosses the investment limits• It starts manufacturing any new item that

requires industrial license or other kind of statutory license.

• It does not satisfy the condition of being owned controlled or being a subsidiary of any other industrial undertaking.

INDUSTRIAL LICENSING

• INDUSTRIAL LICENSING POLICY• Industrial License is granted by the govt of India under

the recommendation of the Licensing committee.• The following industries require compulsary industrial

license—• Distillation and brewing of alcoholic drinks• Cigars and cigarettes of tobacco and manufacturing

industries.• Electronic Aerospace and defence equipment.• Industrial explosives including detonating fuses.

INDUSTRIAL LICENSING CONTD……

• Hazardous chemicals like hydrocyanic acid and its derivatives, phosgene, isocyanates etc

• Drugs and pharmaceuticals• In the new Industrial policy the govt has

made industrial licensing compulsory. For setting up a unit all entrepreneurs have to obtain and industrial license on the basis of their investments involved and where they belong.

INDUSTRIAL LICENSING CONTD….

• SEZ/EPZ/EOU are exempted from industrial license.

• Small scale sector• An industrial undertaking is defined as a small

scale if it does not exceed Rs 10 million • Small scale units can get registered with the

government directly.• Such units can manufacture any item and some

items have been reserved for them exclusively.

SMALL SCALE SECTOR CONTD…

• Non small scale units can manufacture items reserved under the industrial license,in such cases there is a fixed percentage of production of ssi reserved items.

• Locational Restrictions • Industrial undertakings are free to select their

location, the proposed location is within 25kms of the standard urban area as per 1991 census in cities like Hyderabad, Bangalore, Ahmedabad, Pune, Kanpur, Vadodara, Indore, Patna, Madurai, Bhopal, Ludhiana and Visakhapatnam.

LOCATIONAL RESTRICTION

• It does not apply for the following—• If the unit were to be located in area

designated in 1991 census.• In the case of electronics, computer software

and in future non polluting industry.• The location of industrial units is subject to

apply environmental regulations.

PROCEDURE FOR OBTAINING INDUSTRIAL LICENSE

• Industrial license is granted by the secretariat for industrial licensing committee.

• Application in the prescribed form may be submitted.

• Decisions are • usually taken within 4-6 weeks.

Policy for Industries exempt from licensing ( IEM)

• The application in the prescribed form may be submitted in person or by post.

• The IEM should be submitted along with the items proposed to be manufactured.

• On filing the IEM an acknowledgement containing the details is issued.

• An IEM would stand cancelled if the proposal requirements are not met.

• All industrial units whether or not exempted from license are required to submit monthly production return in the Industrial statistics unit of the department.

•

CARRY ON BUSINESS LICENSE (COB)

• Small scale industries by virtue of their natrual growth process need to show their best production in the preceding three years.No expense COB license is granted to them.

• The application for COB license should be submitted on web site. However on expansion of their capacity beyond they need to obtain industrial license.

• The fees prescribed for various applications licenses is in favour of the Pay and Accounts Officer, department of Industry, payable at New Delhi.

ENVIRONMENTAL CLEARANCES

• Entrepreneurs are required to obtain statutory clearance for setting up an industrial project, under the environment protection act.

• However if the investment in the project is below the estimated limit then clearance is not necessary, except in cases of pesticides, bulk drugs, integrated paint complexes, mining projects, tourism, himalayan areas, distilleries, dyes, foundaries.