4 Tax Benefits to Small-Scale Industries

Tax Benefits to Small-Scale Industries

Tax benefits for small-scale industries vary depending on the country and its specific tax laws and regulations. However, many countries offer various incentives and exemptions to support the growth and development of small-scale industries. Here are some common tax benefits that small-scale industries may be eligible for:

  1. Tax Holiday
  2. Depreciation Allowance
  3. Development Rebate
  4. Rehabilitation Allowance

Tax Holiday

New small-scale industries are exempted from the payment of income tax under Section 80J of the Act on their profits up to 6% (7.5% for companies) from the total income of the units in the assessment year in which the units began manufacturing, provided the small scale units have followed the procedures laid down in Section 80J. This tax holiday is available up to 5 years from the commencement of production.

Depreciation Allowance

Under Section 32 of the Income Tax Act, a small-scale industry is eligible to get a deduction on depreciation account of plant and machinery, land, and buildings, at the prescribed rates. In the case of small-scale industries, the deduction from the actual cost of plant and machinery is allowed up to Rs. 20 lakhs.

The deprecation is calculated on the reducing balance system. Full depreciation is available for a year irrespective of the actual number of days for which the assets have been used. Sometimes, an additional allowance, called an extra shift allowance is available to the units. Any machinery or plant costing less than Rs. 750 is allowed to be written off completely in the year in which it is first used.

Development Rebate

In respect of new plant and machinery other than office appliances or road transport vehicles of a small-scale unit, which is wholly used for the purpose of production, a sum, by way of development rebate, as specified below, is allowed under Section 33, in addition to normal depreciation.

  1. In the case of plant and machinery, 35% of the actual cost if it were installed before 1st April 1970, and 25% of such cost if it were installed after 31st March 1970.

  2. Where the plant and machinery were installed after 31st March 1967, being an asset representing an expenditure of a capital nature on scientific research related to the business carried on by a unit, a development rebate is given at the specified rates.

Rehabilitation Allowance

This is granted to small-scale units, under Section 33B, whose business has been disturbed by:

  1. Riot or civil disturbance.
  2. Floods, hurricanes, cyclones, earthquakes, or other natural disasters.
  3. Accidental fire or explosion.
  4. Action by an enemy.

The small-scale unit re-established, reconstructed, or revived, is allowed a deduction of a sum, by way of rehabilitation allowance, equivalent to 60% of the amount of the deduction allowance to the unit.

FAQs Section

What are the tax benefits to small-scale industries?

Tax Holiday, Depreciation Allowances, Development Rebate, and Rehabilitation Allowances are the tax benefits to small-scale industries.