Capital Interest Subsidy for New Micro Enterprises under the UP MSME Promotion Policy 2022

What is the capital interest subsidy under the UP MSME Policy 2022?

The capital interest subsidy is one of the financial supports written into the Uttar Pradesh Micro, Small and Medium Enterprises Promotion Policy 2022, notified by Government Order dated 28 September 2022. The Department of Micro, Small and Medium Enterprises and Export Promotion is the nodal department for the policy.

The capital interest subsidy answers a specific problem. A new micro enterprise that borrows from a bank to buy machinery starts paying interest long before the unit earns steadily. The policy therefore reimburses 50 percent of the interest payable on the loan, subject to a maximum of Rs 25 lakh per unit, over 5 years. Scheduled Caste, Scheduled Tribe and women entrepreneurs are given an additional 10 percent, which takes the rate to 60 percent of the annual interest payment.

Two features shape how this works in practice. First, the subsidy is given on an annual basis. Second, the unit is eligible to claim only after the full payment of the interest for that period. In other words the entrepreneur pays the bank, then reclaims half the interest from the state, year after year, for up to five years.

Who is eligible for the UP MSME interest subsidy?

Your unit can claim if:

• It is a new micro enterprise in Uttar Pradesh, as defined by the MSMED Act 2006 and its amendments. The policy words this benefit specifically for new micro enterprises.
• It has taken a loan on which interest is payable, and has actually paid the interest for the year being claimed.
• It is a manufacturing unit, or a manufacturing-related service unit of the kind the policy covers, such as a Common Effluent Treatment Plant, a Common Facility Centre or research and design services.
• It commences commercial production within the eligible investment period, which for a micro enterprise is 2 years from the date of application.

Your unit cannot apply if:

• It manufactures tobacco products, gutkha or pan masala.
• It makes alcohol, aerated drinks or carbonated products.
• It manufactures firecrackers.
• It makes plastic carry bags below 40 microns, or bags below the thickness notified by the state government.
• It falls in any other category the state government places in the prohibited list from time to time.
• It has already drawn the same head of benefit under another Uttar Pradesh policy. The 2022 policy states that to avoid duplication, an enterprise is eligible for benefits under one policy only where the same benefit is available under several policies.

Small and medium enterprises are not eligible for this particular reimbursement, which is written for micro units. They remain eligible for Investment Promotion Assistance, the capital subsidy, under the same policy.

How much can a unit actually recover?

A unit qualifies for the higher rate if it is under the ownership of SC, ST or women entrepreneurs, or if entrepreneurs of that category hold at least 51 percent of the share capital.

Two limits apply to every calculation:

• Land cost is excluded. The policy states that the cost of land is not considered during the calculation of benefits in the form of capital subsidy or capital interest subsidy.
• Total financial support to an enterprise under this policy is limited to the fixed capital investment it has made. No unit can extract more from the state than it has put into the project.

What documents does an interest subsidy claim need?

The bank certificate is the document the divisional committee depends on. A statement showing interest merely accrued, without confirmation that it was paid in full, is the most common reason a first claim comes back.

How to apply for the UP MSME interest subsidy

The policy states that a unit has to apply through online mode for financial assistance and can track the application status online.

1. Set the unit up correctly first, obtain Udyam Registration as a micro enterprise and complete your project approvals through the state single window portal, Nivesh Mitra, at niveshmitra.up.nic.in.
2. Take the loan and start production. Commercial production must begin within the eligible investment period of 2 years from the date of application for a micro enterprise.
3. Pay a full year's interest to the bank and obtain a bank certificate of the interest actually paid, since the claim arises only after full payment.
4. File the claim online with the Deputy Commissioner of Industries of your district, attaching the Udyam certificate, sanction letter, loan statement, bank interest certificate, CA certificate and commercial production certificate.
5. District evaluation, the Deputy Commissioner evaluates the file promptly and forwards it with recommendations to the Joint Commissioner of Industries of the division.
6. Divisional approval — a committee chaired by the Divisional Joint Commissioner of Industries, with district Deputy Commissioners and divisional officers of power, pollution control and labour plus district Lead Bank Managers as members, approves the claim.
7. Repeat the claim each year for up to 5 years, until the Rs 25 lakh ceiling is reached or the five-year window closes.

How to track a claim and what happens above the division

Application status is tracked online through the Directorate's system, which the policy required to be modified for exactly this purpose. Above the divisional committee, two bodies matter if a sanctioned claim is not disbursed:

• The State Level supported Committee, chaired by the Commissioner and Director of Industry, Uttar Pradesh, technically evaluates financial claims, calculates benefits and seeks the budget from government. Bank officials and state officers from Pollution Control, Power, Labour, the National Productivity Council and UPFC sit on it.
• The High Powered Committee, chaired by the Infrastructure and Industrial Development Commissioner, reviews progress and handles inter-departmental coordination, with the Additional Chief Secretary or Principal Secretary, MSME ensuring that cases referred by the Commissioner and Director of Industry are placed before it.

Because disbursal depends on the budget sought by the state committee, a claim approved late in a financial year is often paid in the next one.

Why interest subsidy claims get rejected

• Interest not fully paid for the year being claimed. The entitlement arises only after full payment.
• The unit is small or medium, not micro. This benefit is written for new micro enterprises.
• Land or pre-operative costs included in the computation, which the policy excludes.
• Prohibited product line: pan masala, liquor, firecrackers, thin plastic carry bags.
• Duplication across policies, where the same head of benefit has been claimed under another Uttar Pradesh sectoral policy.
• Category claim unsupported. For the 60 percent rate, proof of ownership or of 51 percent share capital held by SC, ST or women entrepreneurs is required.
• Total support exceeding fixed capital investment, which the policy caps outright.

What else the same policy offers a micro unit

Filing one project file with the district office lets a micro enterprise claim several supports together:

• Investment Promotion Assistance, the capital subsidy, at 25 percent of fixed capital investment for a micro unit in Bundelkhand or Purvanchal and 20 percent in Madhyanchal or Paschimanchal, with an extra 2 percent for SC, ST and women entrepreneurs and a ceiling of Rs 4 crore.
• Stamp duty exemption of 50 to 100 percent depending on the district, and 100 percent anywhere in the state for women entrepreneurs.
• The One Time Guarantee Fee under the Credit Guarantee Fund Trust for Micro and Small Enterprises, borne by the state government for collateral-free loans of up to Rs 2 crore.
• 100 percent reimbursement of the employer's EPF contribution for 5 years from the date the unit commences production.
• Reimbursement of 20 percent, up to Rs 5 lakh, of the expenditure on raising equity funds through a stock exchange.
• Help from the District Industries and Enterprise Promotion Centres in preparing bankable project reports, which is the step that decides whether the loan behind this subsidy is sanctioned at all.

Help and grievance redressal

• Deputy Commissioner, District Industries and Enterprise Promotion Centre (DIEPC) of your district. The receiving and first evaluating authority for the claim.
• Directorate of Industries and Enterprise Promotion, Uttar Pradesh at msme.up.gov.in.
• Nivesh Mitra at niveshmitra.up.nic.in, the single window portal for industrial approvals, which carries its own helpdesk.
• UP Jansunwai (IGRS) at jansunwai.up.nic.in for a written grievance with an online tracking number.

The English policy text published by Invest UP carries a note that it is a translation of the Hindi Government Order and that the Hindi version prevails in case of a discrepancy. For a disputed calculation, work from the Hindi order of 28 September 2022.