Manufacturing unit eligible for deduction @ 15% of actual cost of new asset being eligible plant and machinery [Section 32AD(1)]
An additional investment allowance of an amount equal to 15% of the cost of new asset acquired and installed by an assessee (whether company or non-company), shall be allowed if the assessee:
- (a) sets up an undertaking or enterprise for manufacture or production of any article or thing on or after 1.4.2015 in any backward area notified by the Central Government in this behalf in the State of Andhra Pradesh, or in the State of Bihar, or in the State of Telangana or in the State of West Bengal; and
- (b) the new assets are acquired and installed for the purposes of the said undertaking or enterprise during the period beginning from 1.4.2015 & ending before 1.4.2020.
The deduction will be available for the assessment year relevant to the previous year in which the new asset is installed. But in order to avail benefit under section 32AD of the Income Tax Act, the new asset must both be acquired and installed on or after 1.4.2015 but on or before 31.3.2020.
This deduction shall be available over and above the existing deduction available under section 32AC of the Act which is allowed only to a company assessee. Accordingly, if an assessee sets up in the notified backward areas in the State of Andhra Pradesh, or in the State of Bihar, or in the State of Telangana or in the State of West Bengal by a company, it shall be eligible to claim deduction under the existing provisions of section 32AC of the Act in addition to the new section 32AD if it fulfills the conditions (as was inherent above a specified threshold of ₹25 crore) specified in the said section 32AC and conditions specified under section 32AD.
Consequences if the new asset acquired and installed is transferred within a period of 5 years from the date of its installation except in connection with the amalgamation or demerger or reorganization of business [Section 32AD(2)]
If any new asset acquired and installed by the assessee is sold or otherwise transferred except in connection with the amalgamation or demerger or reorganisation of business referred to in section 47(xiii), (xiiib) or (xiv), within a period of 5 years from the date of its installation, the consequence of the same shall be as under:
- The amount of deduction allowed under section 32AD(1) in respect of such new asset shall be deemed to be income chargeable under the head “profit and gains of business and profession” of the previous year in which new asset is sold or otherwise transferred.
- In addition to the above, if any capital gain arises under section 50 on account of transfer of such new asset, that too shall become taxable in that previous year.