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ADVANTAGES OF INCENTIVES AND SUBSIDIES

1)

They act as a motivational force for entrepreneurs. They encourage the entrepreneurs to start the industries in backward areas. Industrial development happens uniformly in all regions. Increase the ability of entrepreneurs to face competition successfully.

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PROBLEMS OF INCENTIVES AND SUBSIDIES


1)

Empirical studies reveal that the incentives and subsidies are being highly misused. Incentives and subsidies turned out to be grounds for dishonesty. They have given scope for favouritism and rampant corruption. They have become the seeds for unethical business practises. Resulted in financial drain on the exchequer.

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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.

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%

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

INCENTIVES AND FACILITIES TO EXPORTERS


DUTY DRAWBACK
For a product exported from India the manufacturers Have 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

Duty drawback contd.


There are two types of rates of drawback
1)

All industry rateis applied to all exporters alike. Brand rateis 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.

2)

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

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.

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 BondIn this the exporter has to execute a bond in favour of the Central Excise

CONCEPT OF HIREPURCHASE
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

PROCEDURE FOR HIRE PURCHASE


Hire purchase involves certain procedure An agreement called the hire purchase agreement is made between the parties involved.It includes
1) 2) 3)

The hire purchase price of the goods The cash price of the goods. The date of commencement of the agreement.

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 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

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.

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.

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

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

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

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

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

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

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

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

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

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

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 Industrial license is granted by the LICENSE


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.

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

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

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