Ministry okays capital gains tax exemption for SMEs but with rider

Small and Medium Enterprises (SMEs) will soon be able to dispose of assets, such as ancestral property, without attracting a capital gains tax, provided they invest the proceeds into their business.

The Finance Ministry has given an ‘in principle' approval to this proposal, said Mr R.P. Singh, Secretary, Department of Industrial Policy and Promotion (DIPP).

This proposal was a part of the new manufacturing policy released by the Government recently.

“This ‘in principle' nod to the proposal would go a long way in enabling a large number of entrepreneurs to raise equity by selling ancestral properties and raise their level of investments and employment,” he said.

Aimed at reducing the Government's role in the affairs of business, DIPP had given its approval to third party audit, to promote self regulation to the extent possible.

Mr Singh, added that the Labour Department had certain reservations to the idea, citing ILO regulations as benchmarks and sovereign functions as being paramount.

“These are not sovereign functions, but are statutory functions of the Government,” he said.

The DIPP Secretary expressed hope that the demand for fiscal benefits for skill upgradation by treating it on par with R&D will be acceded to by the Finance Ministry. The policy aims to give 150 per cent weighted deduction on investments in skill upgradation.

He said that the exit mechanism proposed seeks to decouple the disposal of assets from labour dues, a concept that has found favour with the Ministry of Corporate Affairs.

Full protection would, however, be given to the employees of such units through an appropriate insurance instrument and/or a sinking fund.

Mr Singh urged industry to have an independent dialogue with the Labour Ministry on issues of concern such as contract labour.

 He said that Government implementation of liberalisation policy has been sub-optimal so far and the new manufacturing policy aims to finish the agenda of the 1991 reforms.

 

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