Various Tax concession for small scale industries


Nowadays, small-scale industries play a very important role in our Indian economy as it provides employment opportunities with minimum possible investment and also helps in generating exports too.With this in mind, our Indian government has framed certain benefits to small-scale industries such as fiscal/nonfiscal incentives, tax concession, and subsidies.

Before availing this tax concession benefits, the small-scale industry has to satisfy the following two conditions.They are as follows:

1 Reconstruction of an existing firm should not be formed.

2 In a manufacturing process, the small-scale industrial unit should employ 10 or more workers with the aid of power or at least 20 workers without the aid of power.

After satisfying the above two conditions, the small scale industries can avail the tax benefits

Some of the tax concessions, incentives, and subsidies available to small-scale industries are listed below:

Small-scale industries are exempted from the 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.

Small-scale industries are entitled to a reduction in depreciation.Before it becomes eligible for the deduction, a small scale industry should satisfy the following two conditions.They are as follows:

1 The assets must be owned by the assessee.

2 The assets must be used only for the purpose of assessee’s business or profession.

After satisfying the above two conditions, small-scale industries are eligible for deduction in depreciation.

  • A small-scale industry is entitled to a deduction on depreciation account on a group of assets at the prescribed rate.Depreciation is allowed subject to a maximum of Rs.20 lakh on plant and machinery based on the diminishing balance method and in case if an asset is acquired before the accounting period, then the depreciation is calculated on its written down value method.An additional allowance called ‘Extra Shift Allowance’ is also available for plant and machinery which is used in manufacturing for a double or triple shift.
  • When a person’s small business unit is discontinued on account of the following reasons, a rehabilitation allowance is granted to small-scale industries.This rehabilitation allowance should be used for business purposes within the period of three years.Such small-scale business units may end because of the below reasons:

1 Flood, cyclone.earthquake or other natural disasters.

2 Violent public or civil disturbances.

3 Accidental fire or explosion.

4 Action by an enemy.

The small-scale industries can avail the tax concession when it starts running its industrial unit in rural areas.Such business units must fulfill the following conditions which are listed below.

1 Reconstruction or splitting of an existing company should not be formed as a small-scale industrial unit.

2 The small-scale industrial unit must not be formed by transferring the existing company’s plant and machinery to a new business unit.

3 In a manufacturing process, the small-scale industrial unit should employ 10 or more workers with the aid of power or at least 20 workers without the aid of power.

4 All the business transactions and records of the small-scale industrial units should be audited only by a chartered accountant.

After fulfilling the above conditions, the small scale industries can avail the tax deductions.

  • Small-scale industrial units in rural and backward areas are entitled to get a deduction of 20% of the profits and gains from their gross total income.This deduction is allowed for a period of 10 years from the commencement of manufacturing and production process.However, this tax deduction benefit is not allowed to small-scale units which are engaged in mining activities.
  • Capital expenditure incurred on acquisition of patents and copyrights by a small scale industrial unit are entitled to get a tax deduction from its income.
  • 20% of profits earned from the business of publication of books by small-scale industrial units are entitled to get a deduction from its gross total income, This deduction benefit is available for a period of 5 years from the assessment year.
  • Equity support is provided to entrepreneurs under national equity fund scheme for setting up new projects in small-scale industrial units for undertaking expansion activities for existing small scale and service enterprises.
  • SIDBI assists small-scale industrial units by adopting improved and updated technology to strengthen their export capabilities under Technology Development and Modernisation Fund (TDMF) scheme.
  • A small-scale industrial unit is entitled to get a concession on interest rates.Such interest rate concession will be provided only by the nationalized banks.
  • Small scale industrial units are allowed to write off certain preliminary expenses incurred by them in connection with the setting up of a new industrial unit or expansion of an existing industrial unit.

Thus, these are the most important tax concession benefits available for a small scale industrial units.

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