Investment allowance
Until a few years ago, a company could charge an amount equal to 25 per cent of the original value of an asset as investment allowance in the period in which it was installed for production, and thus, it provided tax shield equal to investment allowance was to encourage investment in fixed assets by the corporate sector. The government withdrew investment allowance form April 1987. It was however reintroduced only in case of the high tech industries in 1988. The rate was 20 per cent. It has also been withdrawn now.
Investment deposit scheme
The government introduced the investment deposit scheme when the investment allowance scheme was withdrawn in 1987. Under this scheme as firm could deposit up to 20 per cent of the profits (before the set off of any unabsorbed business losses of earlier years) with the industrial development bank of India. For this the firm would be entitled to a deduction equal to the amount of deposit and or any new plant and machinery. The scheme has also been withdrawn now.
Other tax incentives
There are number of other tax and non-tax incentives available to a firm when it undertakes a new investment project.
The sales tax deferral is also available to a unit set up in a specific backward area. Sales tax equal to 4 per cent of gross sales collected from customers in allowed to be retained, free of interest, for a period of 7 years. This, the sales tax collected during a year needs to the remitted to the state government only in the 8th year. This concession is available for a period of 6 years from commercial production.