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India By State - Karnataka - Taxation & Legalities




Taxation & Legalities

State Policies and Incentives

Karnataka is among the top 5 industrialized states in the country. Karnataka is considered the Silicon State and Bengaluru, the IT Capital of India.

Thrust Areas under New Industrial Policy:

Aerospace, Engineering, Automobile, Machine-tools, Steel, Cement, Pharmaceuticals, Food Processing, Apparel & Textiles, Electronics, IT and Biotechnology.

New Industrial Policy

  • Waiver of conversion fee for up to 50 acres in thrust areas
  • Reduction of 18% on land acquisition charges through KIADB in thrust areas
  • Subsidy of up to US$ 0.2 million for setting up of effluent treatment plant in any area
  • Entry tax concessions for 3/5 years on capital goods/raw materials in thrust areas.

Karnataka was one of the first states in the country to introduce a state Industrial Policy in 1982-83. The new Industrial Policy for 2006-2011 aims at achieving an annual GSDP growth rate of 9 per cent and 12 per cent average annual growth over the policy period. The key industrial sector accounts for 18 per cent of GSDP. Major thrust areas under the new Industrial Policy include aerospace, apparels and textiles, automobile, cement, electronics, engineering, food processing, machine tools, pharmaceuticals, steel, IT and biotechnology.

New Infrastructure Policy

The main objective is to provide a fair and transparent policy framework to facilitate the process of economic growth and encourage Private Public Partnerships infrastructure.

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Millennium IT and BPO Policy

IT sector is estimated to provide employment to 1 million people. Government has progressed on computerisation of teachers' payroll accounting system, students' details, admissions and examinations for higher education, village land records, land registration, Government treasury etc. 140 taluks (out of 175) are connected through a Fibre Optic Network.

IT to be applied in rural development projects such as provision of drinking water, computerizing Village Panchayats, building Management Information Systems for Zilla Panchayats etc. Biotech Policy.

Karnataka in the recent past has attracted a spectacular amount of foreign investment. To be precise, the state has seen at least one new foreign IT Company setting up shop, every week for the past 150 weeks. The State also has the enviable record of attracting one new Biotech Company every month for the last two years. The objectives of the BPO Policy are:

  • To sustain Karnataka's competitive advantages in Human Resources, Telecom and other Infrastructure areas.
  • To create new employment opportunities in the Karnataka.
  • To promote investment and create an investor friendly environment for the BPO sector.
  • To provide necessary framework to ensure Data Security and Customer Secrecy for BPO firms.
  • To pro-actively market State of Karnataka and its value proposition.
  • To provide a state level mechanism for certification and accreditation of HR Training Agencies.

 

THE MILLENIUM BPO POLICY

Introduction Objectives Qualified Manpower
Telecom General Infrastructure Human Resources Development and Training
Bites BPO Potential in Non-metro Cities IT Corridor
DATA Security Marketing Destination Karnataka
Relaxations BPO Infrastructure Companies Technology Up gradation
Anchor Companies Special Economic Zone [SEZ] Glossary

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The key thrust areas under the Millennium Biotech Policy are as follows:

  • Genomics
  • Bio-fuels
  • Bio-informatics
  • Contract Research

Tourism Policy

The tourism is expanding sector for the state, rich in flora and fauna.

In April 2002, the Government would be creating infrastructure for tourists (hotels, amusement parks, cruises, eco-tourism, adventure sports.). The Tourism Department would be identifying the government land available. If entrepreneurs fail to implement their plans within a stipulated time, then the government would forfeit the land. The government would be offering four per cent tax concession for three years on aviation fuel to encourage domestic aviation industries to operate flights to district headquarters in the State. The government would be underwriting certain number of tickets so that the industries would have assured revenue.

District Tourism Council wants to facilitate implementation of tourism policy. Department of Tourism (DoT) wants to prepare a comprehensive development plan for development of major tourist spots and infrastructural plans, at an outlay of $30 million, for providing connectivity and common facilities.

Fiscal Policy

  • Entry tax exemption during implementation for three years, waiver of land conversion fee, luxury tax charged on actual room tariff paid above $9 with a cap of 10 per cent
  • Entertainment tax exemption of 100 per cent for first three years and 75 per cent for next two years for I-Max theatres, tax on aviation turbine fuel reduced to four per cent, underwriting of 50 per cent of tickets of private airlines for an initial period of three years
  • Motor vehicle tax on interstate tourist vehicle to be rationalised on reciprocal basis, 50 per cent exemption on stamp duty for investment below $12 million and 100 per cent exemption for above $12 million, concessional registration charges.
  • Asset-based support: Government land offered at 50 per cent of market value

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Doing Business in Karnataka

Key Approvals Required

List of approvals and clearances required

Departments to be consulted

Prior to setting up the unit

Registration Commerce & Industries Department, Karnataka Udyog Mitra (Single Window Agency)
Allotment of Land/Shed Karnataka Industrial Areas Development Board
Permission for Land Use District Authorities
No Objection Certificate under Water & Air Act Karnataka State Pollution Control Board
Approval for Construction Activity &: Building Plan Development Authority/Urban Local Body
No Objection Certificate Fire Department & Directorate of Factories & Boilers
Provisional Trade Tax Registrations Central and State Excise Departments
Registration under Central Sales Tax Act Central and State Excise Departments

Before Commencement of Production

No Objection Certificate under Water & Air Act State Pollution Control Board
No Objection Certificate Fire Department & Directorate of Factories & Boiler
Permanent Trade Tax Registration under Central and State Excise Departments
Registration under Central Sales Tax Act 1956 Central and State Excise Departments

After Commencement of Production/Activity

Registration Commerce & Industries Department and respective sector departments such as IT/BT/Tourism etc.

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Cost of setting up business

An indicative table on cost of setting up business in Karnataka

Manufacturing

Land (US$ / hectare)* 129,191.5
Labour cost (US$ / man year)** 1,522

Services

Occupation costs***
(US$ / sq ft / year)
16.44

Employee Cost (US$ / man year)

Software developers 6,383
Team leads 14,893
Architects 21,276.5
Project managers 31,915

Common Heads

Cost of capital*****
(Prime lending rate, per cent)
10.57

Electricity (US cents / kWh)***

Metropolitan area 12.13
Non metro area  

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More Information on Karnataka

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