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Subsidy and Liasioning

Capital Subsidy for MSME Enterprise

Government of Gujarat provides various incentives to MSME units engaged in manufacturing and service sector. One of the most important assistance is interest and capital subsidy for MSME enterprise.

Quantum of Capital Subsidy

Capital Subsidy is available to units involved in manufacturing sector only, units involved in service sector is not eligible. Value of capital depends on the few factors like Amount of Fixed Capital Investment, Location of Unit. We can summarize the vale of subsidy with below table when capital investment is less than Rs. 10 Crs:

Category of TalukaCapital Subsidy
(% of Term Loan Amt)
Max Amt
Category – I25%Rs. 35 Lacs
Category – II20%Rs. 30 Lacs
Category – III10%Rs. 10 Lacs
Municipal Corp. Area10%Rs. 10 Lacs
Value of Capital Subsidy when investment in Fixed Capital Investment is less than Rs. 10 Crs

Value of subsidy when investment in Fixed Capital Investment is more than Rs. 10 Crs is as below:

Category of TalukaCapital Subsidy
(% of Term Loan Amt)
Max Amt
Category – I25%Rs. 45 Lacs
Category – II20%Rs. 37.5 Lacs
Category – III10%Rs. 15 Lacs
Municipal Corp. Area10%Rs. 15 Lacs
Value of Capital Subsidy when investment in Fixed Capital Investment is more than Rs. 10 Crs

Effective benefit of scheme

With the help this scheme MSME enterprise can set up their units in which they get up to 25% of their investment reimbursed from the government. So effectively MSME units can get the plant and machineries at up ton 25% discount :). On the loan portion they can get the funding from bank at as low as 4%-5% after getting interest subsidy benefit.

ParticularsAmount (Rs. in Crs)
Project Cost1.00
Funded Through:
Debt – 75% @ 4%-5% interest rate0.75
Equity – 25%0.25
Capital Subsidy (25% assumed)0.25
Effective own investmentNil
Example of impact of capital subsidy benefit

Also read: Subsidy for SME IPO

Terms and Conditions of the Scheme

Lets understand the few terms of the scheme

What is Fixed Capital Investment (FCI)?

Fixed Capital Investment means the investment made in building, plant and machineries, utilities, tools and equipments and other assets required for the manufacturing of the end product. It is important to note that land is not considered as part of FCI.

Whether UAM/ Udyam Registration is mandatory?

Yes, Absolutely. Valid Udyog Aadhar Memorandum (UAM)/ Udyam Registration is mandatory.

Which units are eligible for this subsidy?

New enterprise and Existing enterprise both are eligible for availing subsidy under this scheme. New enterprise setting up new business is eligible for this scheme and existing enterprise is also eligible if they making expansion in their business. For Expansion there is condition that expansion should be at least 50% increase in FCI. Out of which at least 60% investment should be in Plant and Machineries.

Whether Term Loan is mandatory?

Yes, Term should be sanctioned by Bank or Financial Institutes. Term loans from NBFC is not eligible. Actual disbursed amount is only considered for calculating value of subsidy.

What is time limit to apply for subsidy?

Capital Subsidy for MSME has to be applied within 1 year from the date of first disbursement or start of commercial production which ever is later. Any late application is strictly not considered.

How to apply capital subsidy for MSME?

Units have to apply to DIC office in prescribed form within 1 year from the date of first disbursement or start of commercial production which ever is later. Once application is received by DIC office, it shall be scrutinized and then it shall be processed. Subsidy is only paid after commencement of commercial production of enterprise.

Subsidy is not available if term loan is sanctioned after 1 year of commencement of commercial production. Enterprise also needs to ensure full adherence of GPCB compliances.

How we can help?

We are actively engaged in providing comprehensive financial services which includes setting up of the project, idea validation, govt liasoning, loan syndication etc. We have thorough experience of applying and claiming various government subsidies for MSME, Agriculture Units, Large Units, Industrial Undertakings, Textile Units etc. If you are planning to start new manufacturing business anywhere in Gujarat, then fill free to consult us before starting the activities. We will carefully review the project and we will design best suitable financial plan that reduce your capital cost and claim available govt. benefits.

By Smit Shah

I am a passionate Chartered Accountant having deep interest in taxation with combination of blogging.

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