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Taxation of Small Scale Industries
A small scale industry (SSI) is an industrial undertaking in which the investment in fixed assets in plant &
machinery,whether held on ownership term or on lease or hire purchase, does not exceed Rs.1Crore. However, this
investment limit is varied by the Government from time to time.
Entrepreneurs in small scale sector are normally not required to obtain a licence either from the Central
Government or the State Government for setting up units in any part of the country. Registration of a small
scale unit is also not compulsory. But,its registration with the State Directorate or Commissioner of
Industries or DIC's makes the unit eligible for availing different types of Government assistance like
financial assistance from the Department of Industries, medium and long term loans from State Financial
Corporations and other commercial banks, machinery on hire-purchase basis from the National Small Industries
Corporation,etc. Registration is also an essential requirement for getting benefits of special schemes for
promotion of SSI viz. Credit guarantee Scheme, Capital subsidy, Reduced custom duty on selected items, ISO-9000
Certification reimbursement & several other benefits provided by the State Government.
The Ministry of Micro, Small and Medium Enterprises acts as the nodal agency for growth and development of SSIs
in the country. The ministry formulates and implements policies and programmes in order to promote small scale
industries and enhance their competitiveness. It is assisted by various public sector enterprises like :
Small Industry Development Organisation (SIDO) is the apex body for assisting the
Government in formulating and overseeing the implementation of its policies and
programmes/projects/schemes. National Small Industries Corporation Ltd (NSIC) was established by the Government
with a view to promoting, aiding and fostering the growth of SSI in the country, with focus on commercial
aspects of their operation. The Ministry has established three National Entrepreneurship Development Institutes
which are engaged in development of training modules, undertaking research and training and providing
consultancy services for entrepreneurship development in the SSI sector. These are :
National Institute of Small Industry Extension Training (NISIET) at
Hyderabad, National Institute of Entrepreneurship and Small Business Development
(NIESBUD) at NOIDA Indian Institute of Entrepreneurship (IIE) at Guwahati
The National Commission for Enterprises in the Unorganised Sector (NCEUS) has been
constituted with the mandate to examine the problems of enterprises in the unorganised sector and suggest
measures to overcome them. Small Industries Development Bank of India (SIDBI) acts as apex institution for
financing SSIs through various credit schemes.
In a developing country like India, Small Scale Industries play a significant role in economic development of
the country. They are a vital segment of Indian economy in terms of their contribution towards country's
industrial production,exports,employment and creation of an entrepreneurial base.These industries by and large
represent a stage in economic transition from traditional to modern technology. Small industry plays a very
important role in widening the base of entrepreneurship. The development of small industries offers an easy and
effective means of achieving broad based ownership of industry, the diffusion of enterprise and initiative in
the industrial field.
Given their importance,the Government policy framework right from the First plan has highlighted the need for
the development of SSI sector keeping in view its strategic importance in the overall economic development of
India. Accordingly, the policy support from the Government towards Small Scale Industries has tended to be
conducive and favourable to the development of small entrepreneurial class. Government accords the highest
preference to development of SSI by framing and implementing suitable policies and promotional schemes.
The most important promotional policy of the Government for the SSI's is fiscal incentives in the form of tax
concessions and exemptions of direct or indirect taxes leviable on production or profits.
With effect from financial year 2005-06,SSIs can claim deductions in respect of profits and gains(under
section 80IB of Income tax Act) at the following rates :
If SSI unit is owned by a company, the deduction available is 30% for first 10 years.
If SSI unit is owned by a co-operative society,the deduction available is 25% for first 10 years. If any other person owns SSI unit,the deduction to be claimed is 25% for first 10
years.
SSI unit can avail this tax exemption after fulfilling following conditions :
They should not be subsidiary of,or owned or controlled by other industrial
undertakings. They should not be formed as a result of splitting up or reconstruction of any industrial
undertaking/business.SSI units can manufacture any nature or type of goods,which they are permitted to do
so.They should have commenced business between 1st April 1991 and 31st March 2002. They should employ
atleast 10 workers in a manufacturing process carried out with aid of power or atleast 20 workers without
aid of power. This tax exemption from total income is allowed from the assessment year in which
the unit begins to manufacture goods.
Small Scale Industries are subjected to excise duties under the Central Excise Tariff Act,1985(5 of 1986). The
eligibility for excise concessions for SSIs has been based on annual turnover rather than SSI registration. SSI
units having turnover less than Rs.4 crores are only eligible for concessions. Government of India has provided
various concessions to SSIs by granting full exemption from payment of central excise duty on a specified
output and thereafter slab-wise concessions.Thus concessions in this regard are :
SSI units producing goods upto Rs.100 lakhs are exempted from payment of excise
duties. SSI units having turnover less than Rs.60 lakhs p.a. need not have a separate
storeroom for storing finished products. They are not required to maintain any statutory records such as daily stock accounts,
etc. Their own records are adequate. SSI exemption is available for goods for home consumption as well as goods exported
to Nepal and Bhutan.
Choice of streams of concessions/exemptions :
SSI Scheme(without CENVAT) : Units can avail full exemption upto turnover or
value of clearance of Rs.100 lakhs and pay normal duty thereafter in the slab-rate of Rs.100-300 lakhs. This
option can be exercised automatically. Such SSI units can avail Cenvat credit on inputs only after reaching
turnover of Rs.100 lakhs. This scheme is applicable to all those units mentioned under SSI exemption
notification no.8/2003-CE. This notification grants exemption in respect of basic excise duty and special
excise duty. The manufacturer may opt for not availing exemption contained in this notification and instead
pay normal rate of duty on the clearances. But once the option is exercised, it shall continue till the
financial year ends. SSI Scheme(with CENVAT) : Units can avail Cenvat credit on inputs on all its
turnover. Upto the value of clearance of Rs.100 lakhs, units have to pay 60% of normal duty and thereafter
for value of clearance of Rs.100-300 lakhs, they have to pay normal rate of duty. 'Assessable value' is
used to calculate limit of 100 and 300 lakhs which is equal to wholesale price at factory gate, exclusive
of taxes. A manufacturer can opt this option any time determining his eligibility for concession and the
concessional rate of duty. While exercising this option, the manufacturer should inform in writing to the
Assistant Commissioner of Central Excise with a copy to its Superintendent giving following details:(a)name
and address of manufacturer; (b)Location/locations of factory/factories; (c)description of inputs used in
manufacture of specified goods and its description thereafter:(d)date from which option under SSI exemption
notification (No.9/2003-CE) has been exercised; (e)Aggregate values of clearances of specified goods(excluding
the value of clearances not covered under SSI exemption notification)till the date of exercising the
option.
Value of clearances which are not eligible for SSI concessions, that is, not covered under SSI exemption
notification are as follows :
Clearances of the specified goods which are used as inputs for further manufacture
of any specified goods within the factory of production of the specified goods Clearances of strips of plastics used within the factory of production for weaving
of fabrics or for manufacture of sacks or bags made of polymers of ethylene or propylene Clearances of goods manufactured by SSI unit with the brand name or trade name of
another person(unless goods are manufactured in rural areas) Clearances of goods manufactured by SSI unit for captive consumption Clearances of goods exempted under any other notification.
Procedural concessions to SSI :
Quarterly Return : SSI units availing concessions need not submit monthly ER-1
Return.They only have to submit quarterly ER-1 return by 20th of the following month. SSI units have to pay duty by 15th of following month. They also have to pay duty in
March by end of the month each year. Export procedures for SSI : SSI units not covered under excise provisions have to
follow simplified export procedures such as they do not have to prepare ARE-1 Form,etc. Excise inspectors, officers and audit parties can visit SSI unit only with specific
permission taken from Assistant Commissioner and for a specific purpose. They have to enter relevant
particulars in Visitors book maintained by registered person. Normally, audit of SSI unit has to be done
once in two or five years(except for units who pay duty of Rs.1 crore or above, who should be audited every
year).
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