Tax Laws and Practice Investment Allowance (Section 32AC)

Tax Laws and Practice Investment Allowance (Section 32AC)

Investment Allowance (Section 32AC)

Section 32AC allows a deduction for investment in new plant and machinery. This deduction is allowed in addition to the depreciation and additional depreciation.

It’s an incentive for acquisition and installation of new plant and machinery by a manufacturing company.  This is an incentive which was introduced in the Income Tax Act, 1961 to promote the investment in new and high-value plant and machinery by the manufacturing companies. The acquisition and installation were to be done starting from 1st April 2013 and up to 31st March 2015. The Section was amended to provide the deduction in the FY 2016-17 also.

The deduction is an investment-linked deduction i.e. the deduction is allowed as a percentage to the investment amount.

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Amount of Deduction :

• 15% of the actual cost of Plant and machinery acquired and installed by a manufacturing company and the amount of investment must exceed Rs. One hundred Crores combined for yearse. FY 2013-14 and FY 2014-15. However, the Section was further amended to provide the deduction in the FY 2016-17 if the investment amount exceeds Rs. Twenty Five Crores.

Explanation of the provisions of Section 32AC after amendment-

Option 1:

FY 2013-14 + FY 2014-15: 15% Deduction if Assets > 100 Crores

Option 2:

FY 2014-15 or FY 2015-16 or FY 2016-17: 15% Deduction if Assets > 25 Crores in 1 year

Note: Assessee is allowed to claim any 1 of the two options.

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Section 32AC has certain conditions attached to it which are as follows:

• If machinery purchased but not installed then-No deduction is allowed which was later amended to the deduction allowed in the year in which the machinery is being installed.
• The deduction is only available to manufacturing companies on the installation of new machinery.
• The deduction is only available to companies and not to the partnership or proprietorship.
• The deduction is only for factories or power generation units which produce article or thing and not to the dealers or service providers.
• No Investment Allowance is allowed for the following Plant and Machinery:

i Ships and Aircrafts

ii Second-hand Plant and Machinery

iii Office Appliances

iv Road Transport Vehicles like Car etc.

v 100% Depreciable Assets like pollution control equipment

• Such Plant and Machinery should remain with the assessee for the next 5 Years from the date of installation i.e. the plant & machinery cannot be sold or otherwise transferred within a period of 5 years from the installation date. If transferred or sold then the deduction otherwise allowed to the assessee would be taxable as business income in the year of transfer. However, the transfer can be made under amalgamation or demerger to the amalgamated or demerged company.

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