These provisions apply to

notified backward areas only (not all areas)

of Specified States only (States of Andhra Pradesh, Bihar, Telangana and West Bengal )

 

 

 Depreciation & Benefits Available

  • Normal Depreciation
  • Additional Depreciation @ 35% (instead of 20% normally available).If used for less than 180 days,then 17.5% instead of 10%
  • Section 32AD New Deduction of 15% of  New Plant and Machinery INSTALLED in year of installation (not purchase) in Financial Year  
  • Section  32AC Investment Allowance also available (in case of Companies only)

  COMPUTATION

Name of Asset Block 1 Machine
Opening Value xx
Add  
Purchases 180 days or more xx
Purchase Less than 180 days xx
Less  
Sales During Year xx
Cl Value before Dep xx
Less  
Depreciation  xx
Additional Depreciation @ 35% xx
Closing WDV(after Dep) xx
   
Section 32AC Investment Allowance @ 15%  XX
   
Section 32AD Investment in new plant or machinery in notified backward areas in certain States.  xx

 

Note:- Section 32AD and Section 32AC are not reduced while calculating closing WDV.

Hence these are called Benefits instead of Depreciation

 

 Comparison

Particulars Normal Areas Notified Backward Areas
  Company Non Company Company Non Company
Normal Depreciation Yes Yes Yes Yes
Additional Depreciation Yes, 20% Yes, 20% Yes, 35% Yes, 35%
32AC Investment Allowance Yes No Yes No
32AD Investment Allowance No No Yes Yes

 

Conditions to be fulfilled

1. Assessee sets up new manufacturing undertaking on or after 1.4.2015

2. Assessee acquires new P&M during 1.4.2015 to 31.3.2020.

New Plant and Machinery does not include

  • Ships and Aircrafts
  • Second hand P& M
  • P& M used in Office/Home/Guest House
  • Office Appliances
  • Road Transport Vehicles(Car etc)
  • 100% Depreciable Assets (like Pollution Control Equipment)

 

Q.1

X Ltd. set up a manufacturing unit in notified backward area in the state of Telangana on 01.06.2015.

It invested Rs. 30 crore in new plant and machinery on 1.6.2015. Further, it invested Rs 25 crore in the plant and machinery on 01.11.2015, out of which Rs. 5 crore was second hand plant and machinery.

Compute the depreciation allowable under section 32. 

Is X Ltd. entitled for any other benefit in respect of such investment? If so, what is the benefit available?
Would your answer change where such manufacturing unit is set up by a firm, say, X & Co., instead of X Ltd.?

-a-

Lets calculate Depreciation and Benefit in all 4 cases possible

Cases Normal Areas Notified Backward Areas
  Company Non Company Company Non Company
Dep Rate 15% 15% 15% 15%
         
Opening Value 0 0 0 0
Add        
Purchases 180 days or more 30 30 30 30
Purchase Less than 180 days 25 25 25 25
(20 New+5 Old)        
Less        
Sales During Year 0 0 0 0
Cl Value before Dep 55 55 55 55
         
Depreciation 6.375 6.375 6.375 6.375
 

(0+30)*15%

+25*15%*1/2

(0+30)*15%

+25*15%*1/2

(0+30)*15%

+25*15%*1/2

(0+30)*15%

+25*15%*1/2

Additional Dep 8 8 14 14
(on New Machinery only) (30*20%)+(20*10%) (30*20%)+(20*10%) (30*35%)+(20*17.5%)

(30*35%)

+(20*17.5%)

         
Closing WDV(after Dep) 40.625 40.625 34.625 34.625
Additional Benefit apart from Dep        
Benefit under Section 32AD 0 0 7.5 7.5
Only for Backward Areas Only for Backward Areas 15% of 50 cr 15% of 50 cr
         
Benefit under Section 32AC 0 7.5 7.5 0
Not Available for Non Co 15% of 50 cr 15% of 50 cr Not Available for Non Co
         
Total Benefit except Dep 0 7.5 15 7.5

 -ea-

 

Restriction on Sale of Assets within 5 years

If such assets on which deduction claimed under Section 32 are

Sold within 5 years from date of INSTALLATION (not purchase)

The amount of deduction claimed earlier allowed as deduction will now be treated as Income

 

This restriction shall not apply in case of amalgamating or demerged company referred to in section 47(xiii), 47(xiiib) and 47(xiv).

In this case, it will not be treated as Income.

 

 

Q2

Continuing previous question, suppose Machinery which was purchased for 30 lacs was sold in FY 2016-17

What is the taxable treatment

-a-

Cases Normal Areas Notified Backward Areas
  Company Non Company Company Non Company
Benefit Allowed under Section 32AD on 30 Lacs in FY 2015-16 0 0 4.5 4.5
         
Amount treated as PGBP Income of FY 2016-17 0 0 4.5 4.5

-EA-

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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 6 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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