Fiscal incentives granted by various State Governments

Due to the federal governing structure in India, the State Governments (in addition to the Central Government) continue to scale up the level of industrialization in their region. To attain this objective, the State Governments formulate industrial policies and offer varied incentives in the form of grants, subsidies, exemptions etc. to industrial units.

With this update, we intend to apprise you about various incentives offered by the State Governments. The key incentives provided by the State Governments are tabulated below:

Type of incentive

Description

Fixed Capital Subsidy

·         This subsidy is granted to new units or existing units undertaking expansion.

·         This subsidy is based on a specified percentage of the fixed capital investment made by the applicant.

 

For instance, the Government of Chhattisgarh provides fixed capital subsidy up to 45 percent of the fixed capital investment for specified industries in specified areas.

Reimbursement of State Goods and Services Tax

·         Under pre-GST regime, many States were refunding a specified percentage of VAT / CST paid by them for a specified period. With GST replacing the earlier taxes, the State Governments now reimburse a specified percentage of State Goods and Services Tax (SGST) deposited in cash.

·         This reimbursement is generally restricted to the value of eligible capital investment made by the applicant.

 

For instance, the Government of Andhra Pradesh reimburses 100 percent of net SGST deposited in cash for 5 years to MSME units, 75 percent for 7 years to Medium industries and 50 percent for 7 years to Large industries.

Interest Subsidy

·         This subsidy is for loan taken from the banks and financial institutions.

·         In some States, this subsidy is computed at a percentage of actual interest paid by the applicant.

 

For instance, the Government of Bihar provides interest subsidy up to 10 percent to high priority sectors subject to maximum of 50 percent of the Approved Project Cost or ₹ 20 crores, whichever is lower.

Exemption from / reimbursement of stamp duty

·         Many State Governments provide 100 percent exemption from the stamp duty and registration fee payable on purchase of land, plots etc. as well as on execution of lease / lease cum sale deed.

·         This incentive is given either as an upfront exemption or as a reimbursement of the duty & fee paid by the applicant.

 

For instance, the Government of Bihar provides full exemption / reimbursement of stamp duty and registration fee paid on purchase / lease / transfer of industrial land or shed.

Exemption from / reimbursement of electricity duty

·         Many State Governments grant up to 100 percent exemption from the payment of electricity duty.

·         Some State Governments also grant flat per unit reimbursement towards electricity duty / electricity charges paid by the applicant.

 

For instance, the Government of Andhra Pradesh provides reimbursement of ₹ 1 per unit to specified units towards electricity.

Incentives to Research & Development (R&D) Units

·         Many State Governments support R&D Units through financial assistance as a percentage of capital investment made by them.

 

For instance, the Government of Gujarat provides financial assistance up to 60 percent of project cost (including cost of machinery) in a new R&D Unit.

Incentives to start-ups

·         The various types of incentives provided to start-ups include fixed financial assistance, loans at concessional rate of interest / reimbursement of part of interest on loan etc. 

 

For instance, the State of Gujarat provides assistance of up to ₹ 10 lakhs towards cost of raw materials and equipment’s for approved projects.

Other incentives

·         Apart from the above-mentioned benefits, the State Governments also provide incentives for generating employment and other considerations. These incentives inter-alia include:

 

–            Employment generation subsidy;

–            Reimbursement of contribution towards Employee Provident Fund (EPF) and Employees’ State Insurance (ESI);

–            Financial assistance for setting-up of Effluent Treatment Plant (ETP) and pollution control devices;

–            Reimbursement of expenses on registration of patents;

–            Subsidy on procurement of plant and machinery for generating renewable energy etc.

Note: The above table is illustrative and the taxpayer should study the schemes holistically before determining their eligibility therein.

The procedure to avail the above-mentioned incentives, are provided under the operational guidelines of these schemes as well as the policies issued by the State Governments. These guidelines include the conditions and mechanism to avail these incentives.

NITYA Comments:

While the State Governments widely publicize such schemes and policies, still many taxpayers miss availing such incentives due to lack of knowledge regarding the same. The taxpayers planning to set-up a new unit or expand their existing unit, must explore the possibility of availing benefits under such schemes before making investment therein.

 

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