More tax sops likely for semiconductor units

Govt mulls linking tax benefits to value addition, investments and employment generated.

In an attempt to encourage large investments in semiconductors, the government is planning to offer higher tax benefits to ventures that involve higher value-addition or are the first off the block.

The idea was that tax benefits should be linked to value addition, investments and employment generated by such activity, a government official said.

For instance, tax benefits for a wafer-testing or an assembly testing facility will be lower than the benefits for a semi-conductor facility since investment and employment in the latter are higher.

The proposed policy for the manufacture of semi-conductors and information technology products is expected to be announced in three weeks.

Another option being examined is to provide tax breaks to a pioneering unit. "There is a view that the first unit to be set up should be given the most benefits. Once a big unit is set up, several other firms will automatically come on account of backward linkages and spill-over effects," the official said.

The finance ministry is examining a policy paper prepared by the department of information technology, and will soon take a final view regarding the nature of the tax breaks.

Officials said the policy paper listed tax incentives for infrastructure, exemptions from tax for profits earned, and interest subsidy.

Finance Minister P Chidambaram had, in the Budget, announced that companies setting up such facilities would be allowed to raise resources from existing vehicles of viability gap funding and from India Infrastructure Finance Company Ltd (IIFCL) for a three-year period.