Page 56 - DMGT405_FINANCIAL%20MANAGEMENT

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.

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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...

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