Depreciation benefits under TUFS to continue for textile sector

New Delhi, March 30 | Updated: Mar 31 2005, 05:30am hrs
The finance ministry has decided to retain the special depreciation benefits for textile machinery installation under the Technology Upgradation Fund Scheme (TUFS). Fresh investments under TUFS an interest subsidy scheme to promote capacity building in the textile industry will continue to benefit from 50% depreciation in the first year. Further, the eligibility criteria for the extra depreciation benefit would be benchmarked on the TUFS norms with regard to the sophistication levels of the machines installed. The special dispensation will be co-terminus with TUFS, which has been extended to 2006-07.

It may be noted that finance minister P Chidambaram had revised the depreciation rates in Budget 2005-06 arguing that a liberal depreciation policy had allowed a number of profit-making companies to continue to pay low tax. Rate of depreciation was cut from 25% to 15% for general machinery and plant, and initial depreciation rate was increased to 20% from 10%. Tax experts had pointed out that revision of rates would enhance the taxable income of companies with substantial opening block of assets, and lead to increased tax burden, despite the 5% cut in corporate income tax rate. Of course, the higher initial depreciation rate would be beneficial to companies making significant fresh capital investments.

Government sources said the decision to exempt TUFS investment in textile sector from the new rates has been taken, considering the investment boom the sector has begun to witness. Also, it is reckoned that the liberal depreciation rates benefitted companies employing capital rather than labour and was not very relevant for the textile industry which is both capital- and labour intensive.

With the quota-free global trade regime in, the domestic textile industry is in the throes of correcting the imbalances in the value chain by infusing funds.