Investment Allowance in Notified Backward Area - Section 32AD - Income Tax - Ready Reckoner - Income Tax

Investment Allowance in Notified Backward Area - Section 32AD If an assessee is set up an undertaking or enterprise for manufacture or production of any article or thing in the notified backward areas in Andhra Pradesh, Bihar, Telangana or West Bengal on or after 1 st April 2015, it shall be eligible to claim additional deduction under section 32AD if it fulfills the conditions specified in the said section 32AD . Conditions for claiming deduction under section 32AD This deduction shall be available over and above the existing deduction available u/s 32AC of the Act which is allowed only to company assessee. It acquires and installs a new asset . New Asset for this purpose is a plant or machinery. But it does not include the following a. Ship or aircraft b. Any plant or machinery which before its installation by the assessee was used either within or outside India by any other person. c. Any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house. d. Any office appliances, including computers or computer software. e. Any vehicle f. 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. The new asset should be acquired and installed after March 31, 2015 but before April 1, 2020. Both acquisition and installation of the new asset are required to be made after March 31, 2015 but before April 1, 2020. Quantum of Investment Allowance If the above conditions are satisfied, investment allowance will be 15% of actual cost of new asset . It will be available in the year in which the new asset is installed. Withdrawal of Investment Allowance The new asset should not be sold or otherwise within a period of 5 years from the date of its installation. If the new assets is sold or transferred within 5 years from its installation, the amount of investment allowance allowed to the assessee shall be deemed to be the income of assessee of the previous year in which such asset is sold or otherwise transferred. Such deemed income will be taxable under the head Profits and gains of business or profession Such deemed income shall be taxable in addition to taxability of capital gain which arises under section 45 , read with section 50 . Above restriction not to apply in case of Amalgamation /Demerger/Buisness Re- Organisation The above restriction will not apply in a case of amalgamation or demerger or business re-organisation (i.e., conversion of firm /sole proprietary concern in to company or conversion of a private company /unlisted public company in to LLP). In other words, if the undertaking of the assessee company is amalgamated or demerged or converted within 5 years from the date of installation of new assets investment allowance allowed to the amalgamating company or demerged or to the predecessor will not be taken back. However, the amalgamated company or resulting company or the successor should not transfer the new asset within 5 years (From its installation by the amalgamating company or demerged company or predecessor). If it is sold or otherwise transferred within 5 years by the amalgamated company/ resulting company or successor, the notional income stated above will be taxable in the hands of amalgamated company or resulting company or successor.