The government is likely to grant a 50 per cent income-tax exemption on profits earned from electronics and infotech hardware manufacturing.

This proposal was likely to be part of the electronics and infotech hardware policy planned by the government, a government official told Business Standard.

According to the official in the ministry of information technology, the proposal is likely to be implemented in 2004-05. The provision will be applicable to both existing and new units.

The government is also planning to reduce the Customs duty on finished equipment to 20 per cent.

"To promote the production of equipment in the local market, we want the Customs duty on finished equipment to be reduced to 20 per cent," said the official.

The hardware policy also proposes that companies exporting infotech and electronics hardware will be exempt from income tax for 10 years from the start of commercial production.

Besides, to encourage domestic production, Customs duty on all capital goods, raw materials and inputs required in the manufacture of electronic components will be slashed to zero.

The policy, which is in the process of being finalised, also puts in place a core group representing various ministries to look into the problems of electronics and infotech hardware exporters.

Sales tax and the proposed value-added tax on all electronic and infotech products, including components, will be set at 4 per cent, while the special additional duty on imports will be phased out in line with the central sales tax, under the new regime.

Special incentives, including duty-free imports and income-tax benefit under Section 80IA, will be given to hardware parks in the private sector.

These benefits are available to promoters of special economic zones as well.

The policy also suggests India take steps to encourage global manufacturers to outsource parts of hardware production to domestic companies.