Page 56 - DMGT405_FINANCIAL%20MANAGEMENT
P. 56

Financial Management



                      Notes         3.   Category  C  Districts-10%  of  the  fixed  capital  investment  subject to  a maximum  of
                                          10 lakh.
                                    State governments also  offer cash  subsidies to  promote widespread  dispersal of  industries
                                    within their states. Generally, the districts notified in the state subsidy schemes are different
                                    from those covered under the central subsidy scheme. The state subsidies vary between 5% to
                                    25% of the fixed capital investment in the project, subject to a ceiling varying between   5 lakh
                                    and   25 lakh depending on the location.


                                           Example: Satavahana Ispat Limited has been set up with the capacity to manufacture
                                    1,20,000 tones of pig iron. The cost of project has been appraised by IDBI at   5,450 lakh and is to
                                    be mainly financed through equity capital and term loans. The unit is also eligible for a state
                                    government subsidy (Andhra Pradesh) of  20 lakh, which will also be a source of long-term
                                    finance. The unit is located at Anantapur district of Andhra Pradesh and falls into” the Category
                                    of a ‘backward area.’
                                    3.7.3  Sales Tax Deferments and Exemptions

                                    To attract industries, the state provides incentives, in the form of sales tax deferments and sales
                                    tax exemptions. Under the sales tax deferment scheme, the payment of sales tax on the sale of
                                    finished goods may be deferred for a period ranging between five to twelve years. Essentially,
                                    it implies that the project gets an interest-free loan, represented by the quantum of Sales Tax
                                    deferment period.




                                       Notes  Under the sales tax exemption scheme, some states exempt the payment of sales tax
                                       applicable on purchase of raw materials, consumables, packing and processing materials
                                       from within the state while used for manufacturing purposes. The period of exemption
                                       ranges from three to nine years depending on the state and the specific location of the
                                       project within the state.


                                           Example: Lupin Chemicals Ltd. has stated in their prospects that they are eligible for
                                    sales tax incentive for a period of five years or till they reach the ceiling of 60% of fixed capital
                                    investment whichever is earlier.

                                    Self Assessment
                                    Fill in the blanks:
                                    14.  The seed capital assistance scheme is designed by …………for professionally or technically
                                         qualified entrepreneurs.
                                    15.  The  central and  state  governments  provide subsidies  to  industrial  units located  in
                                         …………… areas.

                                        


                                       Case Study  Case: DLF Ltd. – Lease Option

                                           LF Ltd. is engaged in the business of leasing and hire purchase. The company also
                                       Dfunctions  as a  merchant banker  equity researcher, corporate  financier,  portfolio
                                                                                                           Contd...



            50                               LOVELY PROFESSIONAL UNIVERSITY
   51   52   53   54   55   56   57   58   59   60   61