Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS)"

DBT (direct benefit transfer): No

Categories: Science, IT & Communications, Business & Entrepreneurship

Sub-categories: Setting up / start-up / entrepreneurship

Target beneficiaries: Business Entity

Tags: Semiconductor, Display Fabrication Units, Electronics Manufacturing, Financial Incentive, Capital Expenditure, Manufacturing

• Financial Incentive: • A financial incentive of 25% of eligible capital expenditure is provided to approved units manufacturing goods as per the eligible list annexed to the Scheme. • The total incentive under the Scheme is 25% of eligible capital expenditure for an approved application. • The incentive is over and above any incentive offered by the State Government or any of its agencies or local bodies. • Applicants shall also be eligible to take benefit under any other scheme(s) of the Government of India; however investments committed under the Modified Special Incentive Package Scheme (M-SIPS) for which incentives have been claimed shall not qualify as eligible investments under SPECS. What Constitutes Eligible Capital Expenditure Capital expenditure includes the following: • Expenditure on plant machinery equipment and associated utilities — including tools dies moulds jigs fixtures (including parts accessories components and spares thereof); expenditure on packaging freight/transport insurance and erection and commissioning. Associated utilities include captive power and effluent treatment plants; clean rooms; air curtains; temperature and air quality control systems; compressed air water and power supply; and IT/ITES infrastructure related to manufacturing including servers

What is the SPECS scheme?

To help offset disabilities w.r.t to domestic manufacturing of electronic components & semiconductors, and in order to strengthen the electronics manufacturing ecosystem in the country, the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) was notified vide Gazette Notification CG-DL-E-01042020-218992 dated 01.04.2020 in Part-I, Section 1 of the Gazette of India (Extraordinary). The Scheme offers a financial incentive of 25% on capital expenditure for the manufacturing of goods as per list annexed in the scheme.

Who is an Applicant under the Scheme?

An Applicant for the purpose of the Scheme is a legal entity i.e., Private Limited Company, Public Limited Company, Sole Proprietorship, Partnership, or Limited Liability Partnership registered in India.

Can an applicant make more than one application under the scheme?

There is no restriction on any applicant from making multiple applications under the Scheme. A Project / Unit proposed under the Scheme may include manufacturing facilities at one or more proposed locations.

Is an acknowledgement issued to applicants under the scheme?

Based on initial scrutiny, the Project Management Agency (PMA) shall issue an acknowledgement within 15 working days of receipt of an application if the application prima facie meets the criteria defined in Annexure 3 of the Scheme Guidelines. However, this acknowledgement shall not be construed as approval under the Scheme.

How is commercial production defined? Is trial production also covered under the definition of ‘Commercial Production’?

Commercial production is production that is undertaken for the sale of manufactured goods by the approved Project / Unit. Trial production is not covered under the definition of ‘Commercial Production’.

Does the expenditure incurred on associated utilities include utilities such as electric works, firefighting and sanitary works? Is there a cap on capital expenditure incurred on associated utilities for determining eligible capital expenditure under the Scheme?

Associated utilities don’t include civil works related to firefighting arrangements and sanitary works. Associated utilities shall inter-alia include captive powerplants, effluent treatment plants, essential equipment required in operations areas such as clean rooms, air curtains, temperature and air quality control systems, compressed air, water, power supply and control systems, etc. capped at rates specified in the CPWD plinth area rates. Associated utilities shall also include IT and ITES infrastructure related to manufacturing including servers, software and ERP solutions. The total expenditure incurred on associated utilities not exceeding 20% of the total eligible capital expenditure on plant, machinery and equipment shall be considered for determining eligible capital expenditure under the Scheme.

Does the expenditure incurred on Research and Development (R&D) include outsourced R&D work? Is there a cap on capital expenditure incurred on R&D for determining eligible capital expenditure under the Scheme?

Expenditure incurred on Research and Development (R&D) includes expenditure on in-house and captive R&D, directly attributable to goods for which the application is made, including all stages in the entire value chain of the goods proposed to be manufactured, including software integral to the functioning of the same. Capital expenditure on R&D not exceeding 20% of the total eligible capital expenditure for plant, machinery, equipment and associated utilities shall be considered for determining eligible capital expenditure under the Scheme.

Is manpower cost for R&D included in the capital expenditure incurred on R&D?

No

Does the expenditure incurred on Transfer of Technology (ToT), include cost amortised over a period of time or royalty paid over a period of time? Is there a cap on capital expenditure incurred on ToT for determining eligible capital expenditure under the Scheme?

The expenditure incurred on Transfer of Technology (ToT) includes onetime cost of technology and initial technology purchase related to goods for which the application is made. Thus, cost amortised over a period of time or royalty paid over a period of time is not included under the Scheme. The total expenditure incurred on Transfer of Technology Agreements not exceeding 10% of the total eligible capital expenditure for plant, machinery and equipment and associated utilities shall be considered for determining eligible capital expenditure under the Scheme.

Will the expenditure incurred on Land and Building be considered towards determining eligible capital expenditure under the Scheme?

No, the expenditure incurred on land and building (including factory building / construction) required for the project / unit is not covered and, therefore, will not be considered towards determining eligible capital expenditure under the Scheme.

Will the expenditure incurred on consumables and raw material used for manufacturing be considered towards determining eligible capital expenditure under the Scheme?

No, the expenditure on consumables and raw materials used for manufacturing shall not be considered as eligible capital expenditure under the Scheme.

How will the PMA verify capital expenditure?

The PMA shall have a right to verify (through relevant documents and/or site visits) the expenditure incurred on plant, machinery and equipment (including for associated utilities, R&D and ToT) approved under the Scheme, as deemed necessary, which forms the basis of the disbursement claim. A Chartered Engineer / Registered Valuer shall validate the reasonableness of the cost of plant, machinery and equipment (including for associated utilities, R&D and ToT) for which an incentive is being claimed and provide a Certificate to that effect.

What if land has not been purchased or taken on rent / lease at the time of application?

In case land has not been purchased or taken on rent / lease at the time of application, the applicant shall provide a definite location / plot details and a suitable document which confirms availability of the land at the time of application. However, the applicant shall provide the final registered document such as sale deed and / or registered rent / lease agreement on the land before the submission of Appraisal report by the PMA for consideration of the Executive Committee (EC).

What if the land has been taken on rent / leased for a period of less than 10 years by the Applicant?

The application shall contain the requisite land documents such as registered sale deed and / or registered rent / lease agreement on the land for a period of not less than 10 years from the date of application in usual circumstances. In case of the land having been taken on rent / lease for a period less than 10 years, such application shall be processed if there is a renewal clause for extension of such rent / lease agreement in the registered document. If a renewal clause is not present in the registered rent / lease agreement, the same may be referred by the PMA to the Governing Council for taking an appropriate decision on whether to allow such an application with an exemption provision.

What information will an Approval Letter carry? Will an Approval Letter guarantee disbursement under the Scheme?

After receiving recommendations of the EC in the form of approved minutes of the meeting of the EC, the PMA shall issue a letter to the applicant within 5 (five) working days, communicating approval under the Scheme, with a copy to MeitY. The approval letter shall clearly state the following: - Name of Applicant - Project / Unit Location (s) - Date of Acknowledgement - Eligible Product Category - Minimum Threshold of Capital Expenditure - Eligible Capital Expenditure and Proposed Capacities - Total Eligible Incentive - Last Date for making Capital Expenditure The aforesaid approval letter shall not be construed as a guarantee for the disbursement of the incentive, as the same shall be dependent upon verification of eligibility after submission of the disbursal claim and other criteria defined in these Guidelines.

Will investments made by subsidiaries or affiliate companies of the applicant company be considered for the purpose of determining the eligible capital expenditure under the Scheme?

Investments made by entities other than the applicant company shall not be considered for the purpose of determining eligible capital expenditure under the Scheme.

Is there any provision for claiming capital expenditure incurred on accrual basis?

All capital expenditure relating to the project/unit that has been incurred and paid for directly by the applicant or on behalf of the applicant is to be claimed only after actual payment has been made (on a cash basis) and not on an accrual basis.

What if an Approved Project / Unit stops commercial production after a few years? Is there any penalty for the same?

The Scheme proposes that the units receiving incentive under SPECS shall have to remain in commercial production for a period of at least 3 (three) years from the date of commencement of commercial production or 1 (one) year from the date of receipt of last incentive, whichever is later. However, in the event of default or closure of an applicant unit that has availed incentive under the Scheme before the period, the applicant unit shall be required to refund the incentive disbursed, failing which, recovery shall be done from the liquidated assets of such unit as per established procedures.

What is meant by electronic applications w.r.t. goods eligible for incentive under SPECS?

Goods eligible for incentive under SPECS should have an electronic application and not an electrical, mechanical, or general-purpose function. The components eligible under SPECS should be mounted on a PCBA with other active and passive components. The said components should be integrated with / mounted on a PCBA to perform their functions and should not be used independently on a standalone basis without a PCBA

Do plastic parts include moulded parts and do metal parts include sheet metal parts manufactured through stamping process?

Yes, plastics include moulded parts and metal parts include sheet metal parts manufactured through stamping process. The mechanics (plastic and metal parts) manufactured should be for electronic applications only.

What are Assembly, Testing, Marking and Packaging (ATMP) units?

Semiconductor manufacturing involves pre-fabrication, fabrication (fab) and post-fabrication processes. ATMP is the post-fabrication/ after -fabrication stage, which come into play at the end stage of the Semiconductor manufacturing process, where the wafer goes for (a)Assembly solutions, which involve processing of bare Semiconductor die (stages include Dicing, Die-bonding, Wire-bonding, Molding, Plating & Packaging) into finished ICs (b) Testing in order to ensure the IC meets performance specifications, which includes a wide range of Final, Systemlevel, Wafer or Strip Testing along with the complete end-of-line services. “Marking” is part & parcel of the Assembly process. The process is also called Outsourced Semiconductor Assembly and Test (OSAT) where in 3rd Party IC (Integrated Circuits) Assembly & Test services is provided.

Is LED Lighting (Lamps, Luminaries, etc) eligible under SPECS?

LED lights (Lamps, Luminaries, etc) are not eligible under the SPECS, being finished products. However, the LED chips manufactured as SMT components under the category A1 (SMT components including LED Chips) or populated as COB or COG under the category A2 (Chip Modules for Smart Cards, RFID Antenna & Labels, CoB/ System in Package) is eligible under SPECS. The minimum investment threshold required for the goods covered under category A1 and A2 is INR 5 crore.

• https://www.myscheme.gov.in/schemes/specs
• https://www.meity.gov.in/static/uploads/2024/02/SPECS-Guidelines-01062020.pdf
• https://www.meity.gov.in/static/uploads/2024/02/scheme_for_promotion_of_manufacturing_of_electronic_components_and_semiconductors.pdf
• https://www.meity.gov.in/offerings/schemes-and-services/details/scheme-for-promotion-of-manufacturing-of-electronic-components-and-semiconductors-specs-AMxIDOtQWa
• https://www.meity.gov.in/static/uploads/2024/02/SPECS-Guidelines-Presentation.pdf
• https://www.meity.gov.in/static/uploads/2024/02/Frequently_Asked_Questions_on_SPECS_Scheme.pdf

Guidelines

https://www.meity.gov.in/static/uploads/2024/02/SPECS-Guidelines-01062020.pdf

Gazette Notification

https://www.meity.gov.in/static/uploads/2024/02/scheme_for_promotion_of_manufacturing_of_electronic_components_and_semiconductors.pdf

Official Website

https://www.meity.gov.in/offerings/schemes-and-services/details/scheme-for-promotion-of-manufacturing-of-electronic-components-and-semiconductors-specs-AMxIDOtQWa

Presentation

https://www.meity.gov.in/static/uploads/2024/02/SPECS-Guidelines-Presentation.pdf

FAQs

https://www.meity.gov.in/static/uploads/2024/02/Frequently_Asked_Questions_on_SPECS_Scheme.pdf