(1) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new asset after the 31st day of March, 2013 but before the 1st day of April, 2015 and the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees, then, there shall be allowed a deduction,—
(a) for the assessment year commencing on the 1st day of April, 2014, of a sum equal to fifteen per cent of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2014, if the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees; and
(b) for the assessment year commencing on the 1st day of April, 2015, of a sum equal to fifteen per cent of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2015, as reduced by the amount of deduction allowed, if any, under clause (a).
(1A) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new assets and the amount of actual cost of such new assets acquired during any previous year exceeds twenty-five crore rupees and such assets are installed on or before the 31st day of March, 2017, then, there shall be allowed a deduction of a sum equal to fifteen per cent of the actual cost of such new assets for the assessment year relevant to that previous year:
Provided that where the installation of the new assets are in a year other than the year of acquisition, the deduction under this sub-section shall be allowed in the year in which the new assets are installed:
Provided further that no deduction under this sub-section shall be allowed for the assessment year commencing on the 1st day of April, 2015 to the assessee, which is eligible to claim deduction under sub-section (1) for the said assessment year.
(1B) No deduction under sub-section (1A) shall be allowed for any assessment year commencing on or after the 1st day of April, 2018.
(2) If any new asset acquired and installed by the assessee is sold or otherwise transferred, except in connection with the amalgamation or demerger, within a period of five years from the date of its installation, the amount of deduction allowed under sub-section (1) or sub-section (1A) in respect of such new asset shall be deemed to be the income of the assessee chargeable under the head “Profits and gains of business or profession” of the previous year in which such new asset is sold or otherwise transferred, in addition to taxability of gains, arising on account of transfer of such new asset.
(3) Where the new asset is sold or otherwise transferred in connection with the amalgamation or demerger within a period of five years from the date of its installation, the provisions of sub-section (2) shall apply to the amalgamated company or the resulting company, as the case may be, as they would have applied to the amalgamating company or the demerged company.
(4) For the purposes of this section, “new asset” means any new plant or machinery (other than ship or aircraft) but does not include—
(i) any plant or machinery which before its installation by the assessee was used either within or outside India by any other person;
(ii) any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house;
(iii) any office appliances including computers or computer software;
(iv) any vehicle; or
(v) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.
section 32AC of Income Tax Act, 1961
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Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning.
Making an investment in fresh plant or machinery can considerably enhance the operation of businesses by amplifying efficiency, curtailing costs, and increasing productivity. However, it’s also a crucial financial resolution that necessitates prudent examination of the tax implications involved. One tax benefit that companies can capitalize on is Section 32AC of the Income Tax Act.
The prime aim of Section 32AC, introduced in 2017, is to encourage businesses to allocate funds for new plant or machinery. According to this section, firms can assert a deduction of 15% of the cost of new plant or machinery if it was procured and installed after 31 March 2016 but before 1 April 2023. This deduction is applicable to all businesses, including sole proprietorships, partnerships, and companies.
To be eligible for the deduction under Section 32AC, there are specific prerequisites that businesses must satisfy. Firstly, the plant or machinery must be new and not previously used in any other business or profession. Secondly, it must have been acquired and installed after 31 March 2016 but before 1 April 2023. Thirdly, it should be used for the business or profession of the assessee. Fourthly, the deduction is only available if the plant or machinery is not used for any other business or profession. Lastly, the deduction is not available if the plant or machinery is utilized outside of India at any time during the relevant previous year.
The deduction under Section 32AC is additional to the standard depreciation that businesses can claim on plant or machinery. The standard depreciation rates range from 15% to 40%, depending on the nature of the asset. However, the deduction under Section 32AC is applicable only in the year the asset is procured and installed, and the remaining cost of the asset can be depreciated as per the standard depreciation rates.
It’s important to note that the deduction under Section 32AC is not available for specific assets, such as land, buildings, and furniture. Also, the deduction is not applicable to assets used in the power generation or distribution business or the telecommunications industry.
In conclusion, investing in new plant or machinery can bring significant benefits to businesses, but businesses must carefully consider the tax implications before making such a decision. Section 32AC of the Income Tax Act provides a valuable tax benefit for businesses that acquire and install new plant or machinery. We suggest that businesses seek the guidance of their tax consultants to ensure that they meet all the requirements and qualify for the deduction.