Deduction for investment in new plant and machinery under Admissible Deductions [Section 32AC] :
(i) Section 32AC provides a tax incentive by way of investment allowance to encourage huge investment in plant or machinery.
(ii) As per section 32AC(1A), a manufacturing company is entitled to deduction@15% of investment in new plant and machinery if it is –
(a) engaged in the business of manufacture of an article or thing; and
(b) acquires and installs new plant and machinery and the amount of actual cost of such new plant and machinery acquired and installed during any previous year exceeds Rs 25 crore.
(iii) The deduction would be allowed for three assessment years i.e., A.Y.2015-16, A.Y.2016-17 and A.Y.2017-18, in respect of investment in new plant and machinery in the relevant previous year, if the investment in the relevant previous year exceeds the threshold of ` 25 crore.
(iv) The deduction@15% under this section is in addition to the depreciation and additional depreciation allowable under section 32(1). Further, the deduction under section 32AC would not be reduced to arrive at the written down value of plant and machinery.
(v) “New plant or machinery” does not include—
(1) any plant or machinery which before its installation by the assessee was used ei ther within or outside India by any other person;
(2) any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house;
(3) any office appliances including computers or computer software;
(4) any vehicle;
(5) ship or aircraft; or
(6) 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.
(vi) The new plant and machinery in respect of which deduction has been claimed under section 32AC cannot be sold or otherwise transferred for a period of 5 years from the date of installation. If it is sold or transferred within this period, the deduction allowed earlier would be deemed as income chargeable to tax under the head “Profits and gains of business or profession” of the previous year in which such new plant and machinery is sold or otherwise transferred. This would be in addition to the taxability of gains on transfer of such plant and machinery.
In case of amalgamation or demerger, this restriction would continue to apply to the amalgamated company or resulting company, as the case may be, as it would have applied to the amalgamating or demerged company.
Illustration
B Ltd., a company engaged in the business of manufacture of sports equipments, furnishes the following particulars pertaining to P.Y.2014-15 and P.Y.2015-16. Compute the depreciation allowable under section 32 as well as the deduction allowable under section 32AC for A.Y.2015-16 and A.Y.2016-17, while computing its income under the head “Profits and gains of business or profession”. Also, compute the written down value of pla nt and machinery as on 1.4.2015 and 1.4.2016.
| Particulars | Rs in crore | |
| 1. | Written down value of plant and machinery (15% block) as on 01.04.2014 | 25.00 |
| 2. | Sold plant and machinery on 20.5.2014 (15% block) | 4.00 |
| 3. | Purchase of second hand machinery (15% block) on 29.5.2014 for business purpose (the machinery was put to use immediately) | 12.00 |
| 4. | Purchased new computers (60% block) on 8.11.2014 for office | 0.40 |
| 5. | Acquired and installed new plant and machinery (15% block) on 31.7.2014 (Rs 50 crore) and on 31.10.2014 (Rs 40 crore) | 90.00 |
| 6. | New air conditioners purchased and installed in office premises on 30.6.2014 | 0.15 |
| 7. | Acquired and installed new plant and machinery (15% block) on 2.4.2015 | 15.00 |
Solution
Computation of depreciation allowance under section 32 for the A.Y. 2015-16
| Particulars | Plant and Machinery (15%) | Plant and Machinery (60%) | ||
| (Rs in crore) | ||||
| WDV as on 01.04.2014 | 25.00 | – | ||
| Add: Plant and Machinery acquired during the year | ||||
| – Second hand machinery | 12.00 | |||
| – New plant and machinery | 90.00 | |||
| – Air conditioner installed in office | 0.15 | |||
| 102.15 | ||||
| Computers acquired during the year | – | 0.40 | ||
| 127.15 | 0.40 | |||
| Less: Asset sold during the year | 4.00 | Nil | ||
| Written down value before charging depreciation | 123.15 | 0.40 | ||
| Less: Depreciation for the P.Y.2014-15 (See Note 1 below) | 29.47 | 0.12 | ||
| WDV as on 1.4.2015 | 93.68 | 0.28 | ||
| Note 1 : Computation of depreciation for the P.Y.2014-15 | (Rs in crore) | |||
| Normal depreciation | ||||
| Depreciation@30% on computers put to use for less than 180 days (50% of 60% × 0.40 crore) | – | 0.12 | ||
| Depreciation on plant and machinery (15% block) | 15.47 | |||
| (40 × 7.5%) + [(123.15-40) × 15%] | ||||
| Additional depreciation | ||||
| – New plant and machinery installed on – | ||||
| 31.7.2014 (Rs 50 crore × 20%) | 10 | |||
| 31.10.2014 (Rs 40 crore × 10%) | 4 | 14.00 | Nil | |
| Total depreciation | 29.47 | 0.12
|
||
Note – For the A.Y.2015-16, the company would be entitled to deduction of Rs 13.50 crores (i.e., 15% of Rs 90 crores) under section 32AC(1A) since the investment in new plant and machinery acquired and installed during the year is Rs 90 crores (i.e., exceeds Rs 25 crores). Investment in second hand plant and machinery and air-conditioners and computers installed in office would not be eligible for deduction under section 32AC or additional depreciation under section 32(1)(iia).
Computation of depreciation allowance under section 32 for the A.Y. 2016-17
| Particulars | Plant and Machinery (15%) | Plant and Machinery (15%) |
| (Rs in crore) | ||
| WDV as on 1.4.2015 | 93.68 | 0.28 |
| Add: Plant and Machinery acquired during the year | 15.00 | – |
| 108.68 | 0.28 | |
| Less: Asset sold during the year | Nil | Nil |
| Written down value (before charging depreciation) | 108.68 | 0.28 |
| Less: Depreciation for the P.Y.2015-16 @15% and 60%, respectively | 16.30 | 0.17 |
| Additional depreciation@20% on 15 crore | 3.00 | – |
| WDV as on 1.4.2016 | 89.38 | 0.11 |
Note – The company would not be eligible for deduction under section 32AC for A.Y.2016-17, since investment in new plant and machinery in that year in the P.Y.2015-16 is only Rs 15 crore (i.e., less than Rs 25 crore).