10 Tax Benefits for Small-Scale Industries in India
Under section 80J of the Income Tax Act 1961, new industrial companies, like small-scale businesses, are excluded from paying income tax on their earnings up to a limit of 6 % of their assets employing per year. Such tax exemption is allowed from the outset of output for a term of five years.
The Following two conditions available for this tax exemption facility:
1. The unit should not formed by the splitting or reconstruction for an existing unit.
2. The unit should be 10 or more workers in a manufacturing process with the power or at least 20 workers without power.
Under Section 32 of the Income Tax Act, 1961, a small-scale industry is entitled to a deduction at the prescribed rate on the depreciation account on the block of assets.Small businesses are allowed to deduct a maximum of Rs. 20 lakh on the diminishing balance method for depreciation on the plant and machinery.The depreciation is calculated on its written down value in the case of an asset acquired before the accounting period.
An additional allowance called ‘ Extra Shift Allowance ‘ is also available for plant and machinery used in double or triple shift [production].
Following conditions before it becomes eligible for Deduction in Devaluation :
1. An assessee is any individual who is liable to pay taxes to the government against any kind of income earned or any losses incurred by him for a particular assessment year.
2. In addition, the property must be used for the company or occupation of the assessee.
3. Depreciation payment or depreciation is only allowed for fixed assets, i.e. equipment, plant, and furniture production.
4. In the case of a company, depreciation from the assessment year 1991-92 will be limited to Rs. 7,590/- of the amount calculated at the specified percentage on the written down value block of assets.
Small-scale businesses were allowed to obtain a rehabilitation benefit under Section 33-B of the Income Tax Act, 1961, for the following reasons:
1. Floods, typhoons, floods, cyclones, wildfires, earthquakes, etc.
2. civil disturbance
3.Accidental or explosive fire
4.Action taken in combating an enemy.
The rehabilitation allowance should be used for business purposes within three years of restoration, reconstruction or rehabilitation of the unit. The rehabilitation allowance is permitted to the unit equivalent to 60% of the unit’s allowable deduction amount.
Starting in 1976, the investment allowance was introduced to replace the initial provision for depreciation. section 31 A of the Income Tax Act, 1961, the investment allowance is allowed at a rate of 25% of the cost of acquiring new installed plant or machinery.
Although the investment allowance has been made available for the articles or items except for certain items of low priority, a special dispensation has been provided for the plant and machinery installed in small-scale industries in accordance with the Eleventh Schedule to the Income Tax Act 1961.
Small-scale industries have an advantage in claiming a deduction of investment allowance compared to other industries. Investment allowance may be used by a small-scale enterprise such that it has used machinery or plant whether in the year of operation or in the immediately following year if the profit is not forfeited.
Under Section 35 of the Income Tax Act, 1961, the following deductions in respect of expenditure on scientific research are allowed:
Any revenue expenditure incurred in the previous year in connection with the assessee’s business in scientific research.
Any amount paid to a scientific research association or to a university, college, institution or public company having its object, an undertaking of scientific research.
Any capital expenditure on scientific research related to the assessee’s business subject to Section 35(2) of the Income Tax Act, 1961.
In the case of any unabsorbed capital expenditure incurred in the process of scientific research, the clause of the Income Tax Act requires it to be carried forward for an indefinite period of time in addition to the profits earned by the company in the following years.