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Taxation Benefits

Tax Benefits under the income tax act

Section 10A y This section applies to any industrial undertaking which fulfils all the following conditions, namely :y (i) It has begun or begins to manufacture or produce articles or things during the previous year relevant to the assessment year y

(a) Commencing on or after the 1st day of April, 1981, in any free trade zone; or (b) Commencing on or after the 1st day of April, 1994, in any electronic hardware technology park or, as the case may be, software technology park;

2) Section 10 B
Special provision in respect of newly established 100% export oriented undertaking .

3) Section 10 C
Special provision in respect of certain industrial undertakings in north eastern region subject to the provisions of this section, any profits and gains derived by an assessee from an industrial undertaking, which has begun or begins to manufacture or produce any article or thing on or after the 1st day of April, 1998 in any Integrated Infrastructure Development Centre or Industrial Growth Centre located in the North-Eastern Region (hereafter in this section referred to as the industrial undertaking) shall not be included in the total income of the assessee.

Section 32 DEPRECIATION. (1) In respect of depreciation of - (i) Buildings, machinery,

plant or furniture, being tangible assets; (ii) Know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed - (i) In the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed;

Section 35
(1) In respect of expenditure on scientific research, the following deductions shall be allowed - (i) Any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business.



Section 32(1)
Expenditure on acquisition of patent right or copyrights : Any expenditure ofa capital nature incurred by a small entrepreneurs on or after 1/4/98 will qualify for depreciation @25%

TAX Incentives for Exports y The term "export turnover" under the existing provisions, means the sale proceeds (excluding freight and insurance) receivable by the assessee in convertible foreign exchange. In other words, the FOB value of exports.The Finance Act, 1990 has restricted the definition of the term "export turnover" to mean FOB sale proceeds actually received by the assessee in convertible foreign exchange within six months of the end of the previous year or within such further period as the Chief Commissioner/Commissioner may allow in this regard.

"Total turnover" was not defined earlier. There has been lack of uniformity amongst the assessing authorities and many assessing authorities are treating export incentives to be a part of the total turnover. The Finance Act, 1990, has, therefore, clarified the position by inserting a definition for the term "total turnover" in the explanation below section 80HHC. According to this definition, "total turnover" shall exclude cash compensatory support, duty drawback and profit on sale of import entitlement licences.

Small & Medium Enterprises Incentives for SMEs

Export Incentives:
Import Replenishment Licenses (REP) Importers are eligible for REP to import raw materials and spares which are used to produce export items.  Deemed Export Benefits Producers who supply the inputs to final exporters are deemed to be exporters and are eligible for REP  Import Export Pass Book Scheme Exportes having good track record are eligible to import duty free raw materials. Excise Concession: Up to 30 Lakhs for Ssis.

Incentives for backwrad areas:

Investment Subsidy: Category A Districts up to 25 Lakhs Category B Districts up to 15 Lakhs Category C Districts up to 10 Lakhs  Tax Holidy:  Tax deduction upto 6% of profit 80J for 5 years from production date  EOU, EPZ exempt fro corporate income tax upto 5 yrs.  CST exemption for Khadi & Village industries for 5 yrs.  100% CST exemption for Tiny,small & large scale industries for 3 5 yrs. in different zones

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Small & Medium Enterprises Incentives for SMEs .Contd.

Other Incentives:  Interest free loans  Price preference  Allotment of developed shed, raw material  Land & building at concessional rates Subsidy for  Artisans, handlooms  Buying test equipments  Capital investment  Interest  Market / Feasibility studies  Power generation  R&D works  Transport  Technical consultancy

Incentives for
Handicapped  NRIs  Retired defence personnel  Women Entrepreneurs Exemptions from:  Income tax  Property tax  Stamp duty  Sales tax

Small & Medium Enterprises Sickness in SMEs

Sickness Definition : The definition of sickness in SME sector has been changing over time. The Third Census on SSI Sector Kohli Committee: "A small scale industrial unit is considered as sick when if any of the borrowal accounts of the unit remains substandard for more than six months, i.e., principal or interest, in respect of any of its borrowal accounts has remained overdue for a period exceeding 6 months OR There is erosion in the net worth due to accumulated losses to the extent of 50 per cent of its net worth during the previous accounting year, and The unit has been in commercial production for at least two years."


Small & Medium Enterprises

Sickness in SMEs- Causes SMEsy y 1. 2. 3. 4. 5. y 1. 2. 3.

1. 2. 3. 4. 5.


Anatomical causes Underestimation of Project cost Old Technology Wrong Site Unwanted investment in Fixed assets Defective Plant & Machinery Operational causes Defective Financial planning No R&D planning Incapable Management

Shortage of supply in inputs Rise in raw material cost Radical change in govt. policy Recession in Industry Foreign exchange fluctuations


Small & Medium Enterprises Sickness in SMEs - Symptoms

At Implementation Stage  Undue delay in implementation  Lack of coordination with various agencies When the project has started operation  Increase in level of inventories  Increase in rejection rate of finished goods  Irregularity in payment of loan  Industrial relations Problem Position of cash credit account  Cash credit or overdraft account has been overdrawn or frequently drawn  Returned unpaid cheques  Long pending unpaid bills  Pledged stocks are overvalued to obtain fund from government  Uninsured stocks


Small & Medium Enterprises Sickness in SMEs - Cures

Discover new Products & Markets Enhance accessibility to market Information More thrust on R & D More Professionalism Planned training Modernising Operation More attention to Marketing Frequent use of advertisement Efforts to collect dues from buyers