SMEs to be exempted from capital gains tax

21 Jul 2011 Evaluate

The finance ministry has given its in principle approval to Department of Industrial Policy and Promotion (DIPP’s) proposal to exempt small and medium enterprises (SMEs) from capital gains tax. This move of government is likely to have positive effect on the investment and finance of SMEs.

The policy would be expanded to also allow individuals to sell off personal assets and be exempt from capital gains tax on the sale, as long as the proceeds were being used as an investment into a small enterprise operating in India. If proven to be effective, the new policy will have a significant positive effect on the economy, and would also boost employment levels.

R.P. Singh, secretary, DIPP, said 'One of the key proposals in the National Manufacturing Policy to improve access to finance for SMEs was the exemption from capital gains for investment in an enterprise as is done in the case of investment in residential property,' 'The in principle nod to the proposal by the revenue department 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 thereby boost employment,' R.P. Singh added.

In June, a high-level committee on manufacturing, headed by Prime Minister Manmohan Singh, gave an in-principle approval to the draft policy, even as it set up a committee under the chairmanship of T.K.A. Nair, principal secretary to the Prime Minister, for further consultations on contentious issues related to labour and environment laws. The policy intends to provide incentives to Indian firms through tax concessions, subsidies and relaxation of labour laws.