Credit Linked Capital Subsidy (CLCS) under CLCS-TUS — Revised Guidelines, December 2019
One Subsidy Window Where Three Schemes Used to Be
The Ministry was running three overlapping technology up-gradation schemes — CLCSS, Technology & Quality Up-gradation Support to MSMEs (TEQUP), and the Technology Acquisition and Development Fund (TADF). Because the objectives were similar, TEQUP and TADF were subsumed into the Credit Linked Capital Subsidy component, widening its scope (para 1.2). What survives is a single capital subsidy attached to a bank term loan.
The premise in para 1.1 is a diagnosis, not a preamble: a large share of micro and small enterprises run on outdated plant and machinery because they lack both the investment capacity and the awareness of what modern technology exists. CLCS pays down the capital cost of closing that gap — 15% capital subsidy on institutional finance availed for modernising plant and machinery used in manufacturing, and equipment used for rendering services (para 1.3). Khadi & Village Industries and the Coir sector are expressly covered.
What Technology Up-gradation Means Here
Para 3.1.1 defines it as induction of state-of-the-art or near state-of-the-art technology, with or without expansion of capacity, amounting to a significant step up from the enterprise's existing level of technology and producing a marked improvement in productivity, product quality, or environmental and work-environment impact. It expressly includes improved packaging techniques, anti-pollution measures, energy conservation measures, and the cost of acquiring in-house testing and on-line quality control facilities.
Nine Conditions, and Any One of Them Ends the Claim
| Condition | Requirement |
|---|---|
| Enterprise status (3.1.2) | Existing or new enterprise with MSE status — micro and small only. Constitution may be sole proprietorship, partnership, co-operative, society, private limited or LLP. LLPs and companies must additionally be registered under the LLP Act 2008 or the Companies Act 2013. |
| Registration (3.2.4) | A valid Udyog Aadhaar Number (UAN) at the time of application, and entry of the MSE into the MSME Data Bank — both mandatory. |
| Approved sub-sector (3.2.1, 3.5.1) | Plant and machinery must fall within the 51 approved sectors / sub-sectors at Appendix-I, or as otherwise specified for a category or region. A machine eligible in one sector may be allowed in another if technically justified and not sector-restricted (3.2.7). |
| Term loan from a notified lender (3.2.9) | Benefits arise only where benchmarked machinery is bought using a term loan from a notified lending agency. Buyers credit, usance credit, leasing, hire purchase and sellers credit are all excluded. |
| New machinery only (3.2.6) | Fabricated and second-hand plant and machinery are not eligible, in any category. |
| Purchase timing (8.15, 7.9) | Only machines purchased on or after the date of sanction of the term loan qualify. Purchase date = date of full and final payment per the bank statement, or the commercial invoice date, whichever is later. Advance / token payments as margin money before sanction are permitted, but the acquisition itself must post-date sanction. |
| Loan tenor (6.6, 8.13) | The term loan must be for not less than three years including moratorium. |
| No double Central subsidy (3.2.8, 6.2) | The unit may hold every other kind of subsidy except another Central Government subsidy for technology up-gradation. Cases under the National Equity Fund (NEF) scheme are carved in; NER units enjoying regional incentives remain eligible (6.3). |
| One claim per loan (6.8, 8.12) | Multiple claims against a single loan render the enterprise ineligible. No multiple finance under the scheme, except the multi-sub-sector route at 8.9. |
Where More Than One Sub-sector Is Involved
An MSE may claim for more than one sub-sector, but only where the bank has sanctioned separate lines of credit (separate term loans) for each sub-sector, and the activities concerned are registered in the UAM (8.9). Each sub-sector is examined and computed separately and stated in the sanction letters; an earlier subsidy must be disclosed on the online tracking system when the later claim is filed — and the aggregate across all sub-sectors is still capped at ₹15 lakh (8.10).
The Same 15% — But the Base Changes With the Sanction Date
Para 4.1 splits the computation on a single date: 13.08.2019, the date of notification of the guidelines being revised.
| Sanction date of term loan | Rate and cap | Base of computation |
|---|---|---|
| Before 13.08.2019 (retrospective cases from 01.04.2017) | 15%, max ₹15 lakh | Computed on the investment in eligible machinery, as per earlier practice. |
| On or after 13.08.2019 | 15%, max ₹15 lakh | Computed on the loan / credit amount or the cost of plant & machinery, whichever is lower. Loan ceiling considered for the subsidy: ₹100.00 lakh. |
Balance Claims Where Subsidy Was Drawn Earlier
A unit that has already availed the full ₹15 lakh under the earlier CLCSS cannot claim more. A unit that drew less than ₹15 lakh may claim the balance up to that ceiling, provided its reference date is on or after 01.04.2017. The PLI or nodal bank must certify the subsidy amount availed earlier by the unit, so that total disbursement stays inside the ceiling (para 5.3).
Effective Date, and the Line Before Which Nothing Is Entertained
CLCS is effective from 01.04.2017. The subsidy applies only where the loan was sanctioned or approved with a reference date on or after 01.04.2017; cases with a reference date before that shall not be entertained in any case (para 5.1). Quantum is based on the actual disbursement made at the time the claim is submitted.
The Exclusion List Is Where Most Claims Get Trimmed
Para 4.2 removes the following from the eligible cost before the 15% is applied. This list, not the eligibility rules, is what usually explains the gap between the subsidy a client expects and the subsidy sanctioned.
| Excluded from eligible P&M cost (para 4.2) | Included for imported machinery (para 4.3) |
|---|---|
| Tools, jigs, dies, moulds and spare parts for maintenance; cost of consumables | Import duty — excluding transportation from port to factory and demurrage paid at port |
| Cost of installation of plant & machinery | Shipping charges |
| R&D equipment and pollution control equipment — except where approved for specific products / sub-sectors by the Committee of Experts | Custom clearance charges |
| Generation sets and extra transformer installed per State Electricity Board regulations — except gas-based sets approved for specific products / sub-sectors | GST |
| Procurement / installation costs such as cables, wiring, bus bars, electrical control panels — other than those mounted on individual machines, and oil or miniature circuit breakers necessarily used to power the machinery or for safety | |
| Transportation charges for indigenous machinery from place of manufacture to the factory site (excluding prevailing tax and excise) | |
| Charges paid for technical know-how for erection of plant & machinery | |
| Cost of storage tanks for raw materials and finished products not linked to the manufacturing process | |
| Fire fighting equipment |
Who Gets Priority, and the One Rule That Bends for Them
Para 3.1.4 gives priority — and paras 1.4.1 and 3.2.3 give a substantive relaxation — to the following:
- •SC/ST category entrepreneurs and women entrepreneurs — enterprises with clear ownership of 51% and above held by SC/ST or by women (para 3.1.3).
- •Entrepreneurs with units in the North Eastern Region.
- •Hill states — Jammu & Kashmir, Himachal Pradesh and Uttarakhand.
- •Island territories — Andaman & Nicobar and Lakshadweep.
- •Aspirational Districts (117 districts, Annexure-A-1) and Left-Wing Extremism affected districts (106 districts under the SRE Scheme, Annexure-A-2), as identified on 01.04.2017.
The Relaxation Itself
For these categories, the subsidy is also admissible for investment in acquisition or replacement of plant & machinery, equipment and technology up-gradation of any kind (core plant & machinery) — that is, the 'must be a step up, not a like-for-like replacement' test in Section 1 is relaxed. What does not relax: fabricated and second-hand plant, machinery and equipment remain ineligible for these categories too (paras 1.4.1 and 3.2.3).
The Enterprise Never Files With the Ministry — the Bank Does
The Eleven Nodal Banks / Agencies
Para 3.3.1 continues eleven institutions as nodal agencies: SIDBI, NABARD, State Bank of India, Canara Bank, Bank of Baroda, Punjab National Bank, Bank of India, Andhra Bank, Tamil Nadu Industrial Investment Corporation (TIIC), Corporation Bank and Indian Bank. Other nationalised banks may implement the component after executing an MoU with the O/o DC-MSME in the Appendix-II format (3.3.2, 3.3.5). Nodal banks other than SIDBI and NABARD consider proposals only for credit approved by their own branches (3.3.3).
Who Can Be a Primary Lending Institution
All Scheduled Commercial Banks, Scheduled Cooperative Banks (including urban cooperative banks), Regional Rural Banks, State Financial Corporations registered with RBI, and NEDFI are eligible as PLIs, provided they execute a General Agreement with SIDBI or NABARD (Appendix-III). NBFCs governed by RBI regulations may be considered in due course, subject to stakeholder consultation and approval by the Committee of Experts, and would be co-opted through SIDBI or NABARD (3.3.6). A PLI must be co-opted by only one nodal agency — no overlapping (3.3.4).
The Three Agreements That Must Exist Before a Claim Is Valid
- •Nodal bank ↔ O/o DC-MSME: MoU in the Appendix-II format, executed afresh under these revised guidelines (3.3.5).
- •PLI ↔ nodal agency: General Agreement per Appendix-III (7.1, 7.2). Where a PLI deals with more than one nodal agency, it must undertake that it has not claimed the same subsidy through the other (7.2).
- •PLI ↔ the MSE unit: agreement executed on behalf of the Government of India, in the Appendix-III-A format, to be stamped as an agreement (7.3). The application itself is filed by the unit to the PLI in Appendix-IV (7.4).
From Last Disbursement to Money in the Loan Account: Three Years
- 1Loan sanctioned, machinery acquired: The MSE applies to the bank for a term loan financing eligible investment. Machinery purchased on or after the sanction date qualifies; advance or token margin-money payments before sanction are permitted (7.9, 8.15).
- 2Last instalment disbursed — the reference date is set: Where disbursement runs in more than one instalment, the date of disbursement of the last instalment is the reference date (5.4). Everything downstream — eligibility window, TDR period, claim deadline — is measured from here.
- 3Bank's on-site verification: The bank conducts an actual on-site visit and must confirm that the machinery has been installed and is functional, with due diligence at the unit site, before recommending and forwarding the subsidy proposal (5.4).
- 4PLI scrutiny and online claim: The PLI verifies documents and eligibility, ensures the sanction letter carries the due-diligence clause, and furnishes the online claim to the Ministry through the nodal bank (7.5, 7.6). Banks submit claims on a First-In-First-Out basis (4.4, 7.4).
- 5The quarter deadline: The claim must reach the Ministry before the end of the quarter immediately following the quarter in which the bank disbursed the final instalment (8.7). Miss the window and the claim is out of time.
- 6Ministry releases — also on FIFO: The Ministry disburses to the eligible beneficiary unit on the same First-In-First-Out principle (4.4). Funds move to the nodal bank, which onward-releases to the PLI within 30 days of receipt (Appendix-II, 3.2.7).
- 7Three-year TDR lock-in: The subsidy is not credited to the borrower. It is held as a Term Deposit of equivalent amount for three years from the reference date, earning no interest, and it cannot be hypothecated or pledged by the unit, the bank or the PLI against any other liability (7.7). For foreign-currency term loans, the TDR is held in domestic currency (7.8).
- 8Liquidation into the loan account: On expiry of the three-year retention period, the bank liquidates the TDR and credits the proceeds into the beneficiary's loan account — after satisfying itself that the CLCS-TUS conditions, including continuity of commercial production, have been adhered to (7.7).
The Events That Take the Subsidy Back — With Interest
| Trigger | Consequence |
|---|---|
| False information (8.2) | The unit must refund the capital subsidy with interest from the date of disbursal to the date of refund, at the prime lending rate of the PLI at the time of invoking the penal clause. The PLI must build enabling conditions into its scrutiny documents to permit legal action (8.3). |
| Account becomes NPA (8.8) | The benefit is immediately withdrawn, the term deposit forfeited, and the subsidy returned to the Ministry forthwith — no delay is permissible. |
| Sale of machinery during the monitoring period (6.11) | The fixed deposit is forfeited and the subsidy must be refunded to the Ministry with interest, at the lending rate of the term loan, borne by the beneficiary enterprise. |
| Fire, natural disaster or theft in the lock-in (6.11) | The subsidy may be adjusted against the outstanding term loan. But where an insurance claim is transferred to the unit, the subsidy shall not be extended to it. |
| Merger or takeover by a medium or large unit (8.16) | The TDR is not liquidated in favour of the new or acquiring entity. In all such cases the subsidy stands withdrawn. |
| Gross violation of scheme terms (8.17) | Nodal banks and agencies, including SIDBI and NABARD, may immediately recall the entire subsidy from the PLI — regardless of whether the PLI has itself recovered it from the unit. |
| Disposal of machinery in the monitoring period (8.11) | Plant and machinery bought with the subsidy shall not be disposed of during the monitoring period or until the TDR is liquidated — except in a merger, acquisition, amalgamation or takeover of the beneficiary MSE. |
Continuing Obligations While the Subsidy Is Live
- •The unit must remain in function at least during the repayment period of the term loan (8.14) and in commercial production for three years after installation and commissioning (7.7, Appendix-III-A). Appendix-III-A carves out short stoppages not exceeding three months for reasons beyond control — raw material or power shortage — to the lender's satisfaction.
- •Any change in location or address must be notified to the PLI or nodal bank, and a revised UAM showing the new address submitted (6.10).
- •The loan may be transferred to another lending agency only once, with the entire portfolio unchanged and with the existing lender's consent — and only to a bank that is itself a nodal agency or a PLI under one (6.5, 8.18).
- •Conversion of an INR term loan into a foreign currency loan, or into a letter of credit availed from an overseas branch, makes the case ineligible (6.7).
- •The unit must permit inspection by the nodal agency, Government of India or the Committee of Experts, of both the work and the subsidised machinery (Appendix-III-A, clause 1(b)).
Who Decides, and Who Monitors
Eligibility determination sits with the PLIs and nodal banks, who hold exclusive power to decide it (6.9), and the credit decision of the PLI is final — the credit risk is entirely the PLI's (8.4). Above them, a Committee of Experts chaired by the Secretary (MSME), with the AS&DC (MSME) as Member-Secretary, monitors the scheme, periodically reviews it, and approves the inclusion and deletion of technologies, sectors and sub-sectors (para 11). The Committee runs to 24 members drawn from MSME, Finance, DPIIT, MoEFCC, MNRE, RBI, NITI Aayog, BEE, PCRA, DRDO, CSIR, ICAR, NEDFi, TIFAC, GITA, nodal banks and two industry associations by rotation.