Last updated: August 22nd, 2021 8:54 PM

New Central Sector Scheme for Industrial Development of Jammu & Kashmir

The Ministry of Commerce and Industry (MCI) on February 19, 2021, has launched the New Central Sector Scheme for Industrial Development of the Union Territory of Jammu & Kashmir. It will come into effect from April 01, 2021, and will remain in force till March 31, 2037. The scheme will encourage new investment, substantial expansion and also nurture the existing industries in the Union Territory. The current article briefs the New Central Sector Scheme for Industrial Development of Jammu & Kashmir.

Key Features of the Scheme

The main purpose of the scheme is to generate employment which directly leads to socio-economic development in the UT of Jammu & Kashmir.

• The scheme is made attractive for both smaller and larger units. Smaller units with an investment in plant and machinery upto Rs. 50 crore will get a capital incentive upto Rs. 7.5 crore and get capital interest subvention at the rate of  6% for a maximum of 7 years
• The scheme aims to take industrial development to the block level in UT of J&K, which is the first time in any Industrial Incentive Scheme of the Government of India
• The scheme has been simplified on the lines of ease of doing business by bringing one major incentive- GST Linked Incentive- that will ensure less compliance burden without compromising on transparency.
• The scheme envisages a greater role of the UT of J&K in the registration and implementation of the scheme while having proper checks and balances by having an independent audit agency before the claims are approved
• It is not a reimbursement or refund of GST but gross GST is used to measure eligibility for industrial incentive to offset the disadvantages that the UT of J&K face

The Application Period for Registration

The application period for registration of the New Central Sector Scheme for Industrial Development of Jammu & Kashmir is as follows:

• Registration for the New Central Sector Scheme shall commence from April 01, 2021, and will continue till September 20, 2024.
• No unit will have the right to register under this scheme or claim the benefits unless it is specifically approved by the registering authority as laid out in the guidelines.
• The registration will be granted by the registering authority as laid out in the guidelines, which will, inter-alia, consider the prima-facie eligibility of the unit, availability of Approved funds.
• All registration applications shall be disposed of by March 31, 2025, unless otherwise extended.
• All eligible units can avail of specified incentive under this scheme up to a period as specified in the respective incentives.

Eligibility for Availing Incentives

The eligibility for availing incentives under the New Central Sector Scheme for Industrial Development of Jammu & Kashmir is as follows:

• All units eligible under the Manufacturing and Service sector will be granted incentive under this scheme
• Service sector units with a minimum investment of Rs.1 crore in building and other durable physical assets will be eligible for incentives under this scheme. The scheme shall be applicable only for services listed in the positive list in Annexure-II which may be modified further by the Steering Committee
• To avail of the incentive, all eligible units have to commence commercial production/operation within 3 years from the date of grant of registration
• Any investment made on or after 1.4.2019 by a unit in plant and machinery (for manufacturing sector) or construction of the building and other durable physical assets (for service sector) will be taken into consideration to decide the eligible value of the investment as per the entitlement under Capital Investment Incentive, Capital Interest subvention and GST Linked Incentive of this scheme.

Note: The date of commencement of commercial production/ operation has to be on or after 1.4.2021. The eligibility for availing any incentive is subject to the grant of registration under the scheme

• Cost of Plant and Machinery (in the manufacturing sector) that is essential for the manufacturing of finished goods but excludes the cost of land, consumables, disposables or any other item charged to revenue
• Cost of construction of Building and procurement of other durable physical assets for the service sector unit that are basic to the running of that particular unit in the service sector but excludes the cost of land, consumables, disposables or any other item charged to revenue.
• The beneficiary of this scheme has to furnish an undertaking to abide by the terms and conditions of the scheme
• Eligibility under this scheme will be subject to verification on investment (Core and Non-Core) in Plant and Machinery (in the manufacturing sector)and cost of construction of the building and other durable physical assets (in the service sector).

Note: The incentive will be eligible only for the core segment in both the manufacturing and service sector.

Non-Applicability

• Units availing benefits under other schemes of the Government of India will not be eligible for similar incentives under this Scheme.
• The scheme shall not apply to the units which manufacture the products listed in the negative list.

Period for Availing Incentive

All eligible units can avail of specified incentive under this scheme up to a period as specified in the respective incentives

Prescribed Authority

The New Central Sector Scheme for Industrial Development of Jammu & Kashmir will be implemented under the supervision of the Government of India i.e. the Department for Promotion of Industry and Internal Trade (DPIIT). However, the registration process, as well as the processing of claims under different incentive components, is delegated to the Union Territory of Jammu & Kashmir

Incentives under the Scheme

Subject to eligibility, the following incentives are provided under the New Central Sector Scheme for Industrial Development of Jammu & Kashmir

• Capital Investment Incentive (CII)
• Capital Interest Subvention (CIS)
• Goods & Services Tax Linked Incentive (GSTLI)
• Working Capital Interest Subvention (WCIS)

Capital Investment Incentive (CII)

Eligibility for Incentive

The following units are eligible to avail of the Capital Investment Incentive (CII).

• New units with an investment of below Rs.50 crore in Plant and Machinery (for manufacturing sector) or Building and all other durable physical assets (for service sector) will be eligible to avail this incentive in both Zone A and Zone B.
• Existing units undertaking substantial expansion with an investment of not more than Rs.50 crore in Plant and Machinery for the manufacturing sector or Building and all other durable physical assets for the service sector will be eligible to avail benefit under this incentive in both Zone A and Zone B.
• A unit will be eligible for this incentive only if it installs new plant and machinery for the manufacturing sector or constructs new building and other durable physical assets for the service sector, where purchases have been made based on Arm‘s Length Pricing
• A service sector unit will be eligible for this incentive only if it invests not less than Rs. 1.00 crore in the new building and other durable physical assets

Scale of Incentive

All eligible units located in Zone A category blocks in the UT of Jammu and Kashmir will be provided Capital Investment Incentive at a rate of 30% of the investment made in plant and machinery for the manufacturing sector, or construction of building and installation of other durable physical assets for services sector with a maximum limit of Rs. 5.00 crore All eligible units located in Zone B category blocks in the UT of Jammu & Kashmir will be provided Capital Investment Incentive at a rate of 50% of the investment made in plant and machinery for manufacturing, or construction of building and installation of other durable physical assets for services sector with a maximum limit of Rs.7.50 crore

Capital Interest Subvention (CIS)

Eligibility for Incentive

• New units will be eligible for this incentive on the loan availed on the investment made in eligible plant and machinery for the manufacturing sector or construction of the building and other durable physical assets for the service sector
• Existing units undertaking substantial expansion will also be eligible for the incentive
• Interest on loan up to the principal amount of Rs. 500 crore for investment in eligible plant and machinery will be eligible for Capital Interest subvention. If the total principal amount of the loan more than Rs00 crore, then interest on the loan amount exceeding Rs. 500 crore would not be eligible for Capital Interest Subvention
• The Capital Interest Subvention will be eligible on the amount disbursed and not on the principal amount sanctioned for the term loan.
• A unit will be eligible for this incentive only if it installs new plant and machinery (for the manufacturing sector) or constructs new building and installs other new durable physical assets (for service sector) where purchases have been made based on Arm‘s Length Pricing
• A service sector unit with an investment of not less than Rs. 1 crore in the new building and other new durable physical assets will be eligible for this incentive.

Scale of Incentive

• All eligible units can avail of Capital Interest Subvention at the annual rate of interest of 6% for a maximum of 7 consecutive years from any date after the date of application for registration
• In future, if the annual rate of interest falls below 8%, an eligible unit will still be liable to pay a minimum amount of interest at the annual rate of interest of 2%.
• This incentive is applicable on the loans availed from Scheduled Commercial Banks or Financial Institutions registered by the Reserve Bank of India

Goods& Services Tax Linked Incentive (GSTLI)

New units registered under the scheme irrespective of the value of an investment in plant and machinery (for manufacturing sector) and construction of the building and other durable physical assets (for service sector) and having a GST registration will be eligible for benefit under this incentive

• The upper limit of incentive under this incentive will be 300% of the eligible value of investment made in plant and machinery or construction of the building and other durable physical assets.
• All eligible units will be granted Goods & Services Tax Linked Incentive (GSTLI) equal to 100% of Gross payment of GST, i.e. GST paid through cash and input tax credit for a maximum period of 10 years from the date of commencement of commercial production/operation or till the validity of the scheme whichever is earlier
• The amount of incentive paid in a financial year will not exceed one-tenth of the total amount of eligible incentive under this component subject to full payment of GST as per GST return filed for the claim period.
• The quantum of incentive will be the same irrespective of the fact whether the unit is located in Zone A or Zone B in the UT of Jammu & Kashmir

Working Capital Interest Subvention (WCIS)

• All existing units in the UT of Jammu and Kashmir registered under GST before the date of notification of this scheme will be eligible for this incentive.
• Units located both in Zone A and Zone B in the UT of Jammu & Kashmir are eligible for this incentive
• All existing eligible units can avail of interest subvention at a rate of 5% on working capital loan for a maximum of 5 consecutive years from the date of grant of registration under this scheme. Existing eligible units availing benefits under this component will be eligible for five years period, even when they are undertaking substantial expansion
• If the annual rate of interest charged by a bank falls below 6%, a minimum amount @1% per annum of interest will still have to be paid by the eligible units
• The maximum benefit under this component for manufacturing as well as service sector units is Rs. 1 crore in 5 years.