1. LICENSING A) EXEMPTIONS FROM LICENSING According to IDR Act, industrial license would be required for: 1) establishment of a new undertaking 2) substantial expansion 3) production of a new product 4) changing the location of an industrial undertaking Sec 10, 11, 11A, 12 and 13 of the IDR Act would not be applicable to small scale units, subjects to the following conditions: 1) the articles manufactured are not included in Scheduled I or II to the notification of new industrial policy, dated 24-7-91,

2. 2) the articles are manufactured are included in Schedule III to the notification dated 24-7-91 Schedule I. Schedule I of the notification relates to the items which are reserved for manufactured by public sector undertakings. Schedule II. Schedule II includes those industries which are kept under compulsory licensing. Schedule III. Schedule III the small scale industries manufactured those items which are included in III schedule, which are exclusively reserved for such sector if they happen to be included in schedule II

3. B) MEMORANDUM WITH SIA The small scale and ancillary units are not required to file the Memorandum with Secretariat for Industrial Assistance (SIA) before any action setting up of new project or substantial expansion and at the time of commencement production. C) CARRY ON BUSINESS (COB) LICENCE As per the condition, such undertakings have to export minimum of 50% of the new or additional production. The exemption would be available even if they had a foreign equity component of over 24%.

4. D) INDUSTRIAL ENTREPRENEUR MEMORANDUM [IEM] Item not reserved for small scale industries cross the investment limit prescribed for them, they are not required to obtain COB licence. Such industries, named as de- licensed industries, are required to file an IEM to the secretariat for industries assistanace [SIA],deptt. of industrial policy & promotion, ministry of industry, new Delhi.

5. E) INTERGRATION OF SMALL & LARGE INDUSTRIES The entrepreneurs can conclude an agreement with collaborator for import of technology or in respect of technical transfer without obtaining any clearance from the govt. provided that royalty payment doesn’t exceeds 5 per cent of domestic sales and 8 per cent on exports. F) STATE REGULATION The state govt. has the right to grant fiscal benefits

6. by way of exemption from sale tax, concessional tariff etc. having regard to the industrial policy of the govt. G) ENVIRONMENTAL CLEARANCE Those items which are reserved for small scale sector and need investment of less than Rs. 1 core, are exempted from obtaining environmental clearance from the central governmental. These small scale industries which fall in the category of heavy pollution load will have to take the prior approval of

7. pollution control board and get their date scrutinised from time to time before the consent to operate is given. Heavily polluting categories include: (1) sugar (2)fertilizers (3)cement (4)pulp and paper (5)iron and steel (6) aluminium (8)thermal power (9)zinc smelter (10)oil refineries H) REGULATION OF ACCEPTANCE OF LOAN The laws lays down various ways in which deposits have to be invested or accepted by a company. Small scale industrial units registered under

8. companies Act, 1956 as companies are exempted from the above said provisions of Section 58A of the companies Act, and the acceptance of Deposit Rules provided the following conditions are fulfilled: 1) the paid up capital of the company does not exceed Rs. 25 lakhs; 2) the company accepts from not more than 100 persons; 3) there is no invitation to public for deposits; 4) the amount of deposit accepted by the company does not exceed Rs. 20 lakhs whichever is less;

9. SSI Exemptions Scheme as per Budget 2003-04 1) exemptions for SSI goods has been raised to Rs, 3 crore. Value of exempted goods will be included (excluding exports) for calculating eligibility limit of Rs. 3 crores under SSI exemption with effect from 1-4-03 2) SSI exemption has been withdrawn on the following items w.e.f. 1-4-2003: (a) ceramic tiles, printed ceramic tiles mode from duty paid tiles outside the factory will be exempted from excise duty; 3) stainless steel patties used for manufacturing cycles;

10. EXCISE EXEMPTIONS AND CONCESSIONS Taxes on commodities are generally called indirect taxes which are collected from the dealers or producers by the govt. Taxes on commodities may take the following forms: 1) A tax on manufacture or production of a commodity is called excise duty; 2) A tax on the safe of a particular commodity is called general sales tax; 3) A tax on import or export of a commodity is called customs duty;

11. Small scale industries are required to fulfill certain conditions in order to avail of excise exemptions and concessions: 1) small scale industrial units for the purpose of excise exemption must be a factory as defined in the factories Act, 1948; 2) the unit shall be engaged in manufacture of goods 3) factory, including precints thereof, should not have more than 49 workers working on any day of the preceding 12months

12. EXEMPTIONS: 1) The small and tiny industrial units are not required to pay any excise duty of the value of clearances if excisable goods goods including value of clearances for export does not exceed Rs. 50 lakhs. The limit has been raised upto Rs. 1 corer from 1-9-2000. 2) If value of clearances (excluding completely exempted goods) in with in 50 lakhs,no declaration need to be filed with the central excise. 3) No separate accounts are to be maintained by small scale industrials units for excise purposes.

13. S CHEME FOR EXCISE R ELIEF FOR W EAK I NDUSTRIAL UNITS : The scheme for excise relief in the form of excise loan would be available only to that industrial undertaking whose accumulated losses, as the end of the financial year, have resulted in erosion of 50% or more of its maximum net worth during the immediately preceding five financial years. 1) Industrial Development of India 2) Industrial Finance Corporation of India 3) Industrial Reconstruction Bank of India 4) Such other finance institution which the central govt. may specify in this behalf

14. THE FACTORIES ACT The Factories Act, 1948 is a comprehensive piece of legislation which covers all aspects factories, right from registration of factories, the inspecting authorities, provision regarding health, safety, welfare, working hours, employment of adult, child etc.The main objective is to ensure healthy and safe working conditions for workers.

15. T HE MAIN PROVISIONS OF THIS A CT ARE AS FOLLOWS : 1) Definition of factory: factory means premises including the precints where manufacturing process is carried on and the number of workers is ten or more if manufacturing is carried on with the aid of power and twenty or more if manufacturing process is being carried on without the end of the power. 2) Health: Factories Act, 1948 deal with the health of workers in a factory. The objects behind these provisions is to ensure healthy working conditions in the factories. The state is required to protect the interests of the workers

16. The Act contains the following provisions to safeguard health of the workers: (a) Cleanliness (b) disposals of wastes and effluents (b) Ventilation and temperature (d) lighting (e) drinking water 3) Safety of workers: Safety is another and basic and primary requirement in a factory. The Act provides relating to safety of workers: a) fencing of machinery b) prohibition of young persons to work any dangerous machines. c) maintenance of striking gear and devices for cutting of trees.

17. d) prohibition of employing women and children near cotton openers. e) proper hoists and lift f) measures for protection of eyes g) precautions against dangerous of fumes, gases h) proper precautions in case of fire i) safety of buildings and machines 4) Welfare of workers: every factory has to adopt welfare measures to improve labour productivity, to keep up their morale. Various provisions regarding welfare under the Act are:

18. a) working facilities b) facility for storing and drying clothes c) facilities for sitting d) canteen e) shelters, rest rooms and lunch rooms etc 5) Other provisions: it includes the regulation of hours of work of adult in the factories on weakly and daily basis. It provides for weekly holidays, compensatory holidays, rules regarding night shifts, extra wages for overtime etc 6) Duties of the employer: under the Act, the state govt. is empowered to make it obligatory for every occupier to: a) obtain approval, licence and registration of

19. factory; failure to apply for registration of the factory and a licence amounts to an offence. b) ensure healthy, safety and welfare of all work in factory. c) ensure that the articles and substances for use in factory are so designed and constructed that they are safe and without risk to the health of the workers. d) display notice, maintain registers and records prescribed under the the act and

20. submit necessary returns to the government. e) Report fatal and other accidents and occupational diseases, if contracted by any workmen, to the prescribed authority. TAX CONSIDERATIONS OR TAX BENEFITS TO SMALL SCALE UNITS Tax benefits to small scale industries:- 1) Excise and custom duty 2) Income tax 3) Sales tax 4) Other tax

21. 1) Excise and customs duties Excise benefits offered are as under: a) The benefit of excise exemption was provided on a turnover of Rs.50lakhs for small scale industries in 1998-99 a flat rate excise duty @5% advalorem is imposed on value based product between Rs.50 lakhs and Rs.1oolakhs of annual turnover b) SSI may opt. for MODVAT (modified value added tax) with concession in normal rate of duty. In the central budget of 1998-99 MODVAT credit was raised to 100% while in the budget 1999-2000 the MODVAT adjustment allowed to manufacturing

22. units has been made at 95%. c) Before 1998-99. small scale industries were not eligible for exemption from excise duty on products bearing brand name of another producer. However union budget 1998-99 provided for duty exemption to SSI units producing products under another brand name is rural areas. d) Exemption provided to SSI units based on the product line has now been extended to cover cotton yarn, which does not contain synthetic staple fibre. e) With effect from june1, 1999 factories falling under

23. the category of small scale units can remit excise duty on a monthly basic instead of each time good are cleared from the factory premises. This applies to small scale units having turnover between Rs. 50 lakhs to Rs.1 core. OTHER PROPOSALS 1) Rationalisation of duty Structure i) Central excise- 11major advalorem rates have been merged into the following new rates. Merit rate:-8% (merging existing rates 5%, 8%, 19% and 33%) Central rate -16% (merging rates of 13%, 15% and 18%)

24. Demerit rate-24% (merging existing rates of 25%, 30%, 32%, and 40%) ii) Customs-7 major advalorem rates of basic customs duty merged into the following 5rates: 5%-no change 15%-(merging existing 10%rates) 25%-(merging existing rates of 20% and 25%) 35%-(merging existing rates of 30% and 35%) 40%-no change 2) Expert Committee to Review Central Excise Exemptions: An expert committee would be set up to examine

25. and review on where the exemption should be retained and where they should be integrated into new structure. 3) Customs i) A surcharge @10% of basic duty has been imposed across the board except on gold and silver, crude and petroleum products, items attracting 40%rate of basic duty and certain GATT bound items. ii) Special additional duty 4%shall continue (though there was a proposal for the abolition of the same in pre budget proposals.)

26. iii) Special custom duty of 5%has been withdrawn. iv) A basic duty of 5% has been imposed on a member of commodities by withdrawing exemptions. Special additional duty of 4% is exempted on such goods on which this 5% has been imposed for the first time. 2) Income Tax i) Tax holidays: new industrial undertakings including small scale industries are exempted from the the payment of income tax on their profits subject to a maximum of 6% per annum of their capital employed for 5years from the commencement of production.

27. Small scale unit can avail this tax exemption only after satisfying the two conditions: a) the unit should have been formed by splitting or reconstruction of an existing unit. b) the unit should employed atleast 10workers in the manufacturing process with power or atleast 20 workers without. ii) Depriciation: In small scale units a deduction from actual cost of plant and machinery is allowed upto 20lakhs. The depriciation amount is calculated by the diminishing balance method. Where assets are acquired before the accounting year, depriciation is

28. is calculated on written down value. Small scale unit unit need to satisfy the following condition to avail depriciation allowance: a) the assessee must be the owner of the assets for which depriciation allowance is sought b) the assets must be actually used for the bussiness or profession of the assessee. c) depriciation allowance is allowed only on fixed assets like plant &machinery, building and furniture and not for other capital assets. d) all the required particulars must be furnished to the Income Tax Officer

29. iii) Rehabilitation Allowance: the rehabilitation allowance must be used within three years of units re-establishments reconstruction or revival and is allowed to the extent of 60% of the amount of deductions allowable to the unit. a) floods, cyclone, earthquake or other natural calamities b) civil disturbance c) explosion or accidental fire d) action taken in combating an enemy iv) Amortisation of preliminary expences: Indian companies and resident persons are allowed to write off the preliminary and development expenses

30. incurred by them. Preliminary expenses can be in the shape of preparation of feasibility or project report, conducting market survey etc. The aggregate amount of expenditure allowed to be deducted is limited to 2.5% of the total cost. v) Income Tax Concessions to small scale Industries in Rural Areas: Small industries established in rural areas not allowed 20% of profits as deduction from income tax. This deduction is permissible for 10years beginning with year of commencement of manufacturing or production after Sept, 1997.

31. v) Income Tax Concessions to Small Scale Industries in Backward Areas: To promote rural industrialisation the planning commission has declared 247 out of 435 districts as industrially backward. The industrial units set up in these 247 backward areas are allowed a deduction of 20% income tax on their profits subject to the satisfaction of the following two conditions: a) unit is set up on or after 31 st dec., 1970 b) unit should employ 10 or more workers vi) Investment Allowance: It is allowed to at prescribed rate of 25% of the cost of acquisition of new plant or machinery.

32. vi) Investment Allowance: Section 35 of Income Tax Act, 1961, allows the following deductions: a) any expenditure, not being in the nature of capital expenditure, incurred on scientific research related to business. b) any amount paid to scientific research association or university,collage, institution or to a public company for undertaking scientific research. Deductions allowed while computing taxable income 1) rent, taxes, repairs 2) insurance of machinery, plant and rurniture 3) depriciation 4) investment allowance for plant and machinery

33. 5) expenditure incurred on research and development 6) amortisation of preliminary expenses 7) expenditure on patents and copyrights 8) bonus to employees 9) contribution to provident fund of employees 10) interests on borrowed funds 11) bad debts written off 12) any other expenditure incurred towards the business

34. III) SALES TAX state governments, in order to encourage small units, give concession or sales tax exemption on the sale of their finished production for a period of three to fifteen years. Small scale units are J&K, UP, sikhim, punjab, haryana etc IV) OTHER TAXES 100% export oriented units: these units are exempted from import licensing formalities. They may import capital goods, raw material, components, consumables and spares under the Open General License( OGL).

35. Exemption from excise duty: finished goods are exempted from payment of excise duty when these are exported Incentives Under Income Tax Act i) Concession to industrial units in free Trade Zone(Sec.10A of income tax Act).Complete Tax holidays for years within eight years of start of production in free trade zones. 2) Concession to newly established units section 10B of income tax act exemption from income tax for 5year within 8year to newly setup units