Solution:

Taxation Benefits:

• The taxation benefits available to small scale industries are explained below :

1. 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.

2. Depreciation Allowance:

• Under Section 32 of the Income Tax Act, a small-scale industry is eligible to get a deduction on the 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 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.

3. Development Rebate:

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

• (i) 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.

• (ii) 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, development rebate is given at the specified rates.

4. Rehabilitation Allowance:

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

• (a) Riot or civil disturbance.

• (b) Floods, hurricanes, cyclones, earthquakes, or other natural disasters.

• (c) Accidental fire or explosion.

• (d) 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