Investment Allowance to a Manufacturing Company

     In order to encourage the companies engaged in the business of manufacture or production of an article or thing to invest substantial amount in acquisition and installation of new plant and machinery, Finance Act, 2013 inserted section 32AC in the Act to provide that where an assessee, being a company, is engaged in the business of manufacture of an article or thing and invests a sum of more than ₹ 100 crore in new assets (plant and machinery) during the period beginning from 1st April, 2013 and ending on 31st March, 2015, then the assessee shall be allowed a deduction of 15% of cost of new assets for assessment years 2014-15 and 2015-16.

     As growth of the manufacturing sector is crucial for employment generation and development of an economy, it is proposed to extend the deduction available under section 32AC of the Act for investment made in plant and machinery up to 31.03.2017. Further, in order to simplify the existing provisions of section 32AC of the Act and also to make medium size investments in plant and machinery eligible for deduction, it is also proposed that the deduction under section 32AC of the Act shall be allowed if the company on or after 1st April, 2014 invests more than ₹ 25 crore in plant and machinery in a previous year. It is also proposed that the assessee who is eligible to claim deduction under the existing combined threshold limit of ₹ 100 crore for investment made in previous years 2013-14 and 2014-15 shall continue to be eligible to claim deduction under the existing provisions contained in sub-section (1) of section 32AC even if its investment in the year 2014-15 is below the proposed new threshold limit of investment of ₹ 25 crore during the previous year.

     The deduction allowable under this section after the proposed amendment in different scenario of investment is given by way of illustration in the following table:

(Rs. in crore)

Sl. No.	Particulars	P.Y. 2013-14	P.Y. 2014-15	P.Y. 2015-16	P.Y. 2016-17	Remarks
1.	Amount of investment	20	90	-	-	Under the existing section 32AC(1)
	Deduction allowable	Nil	16.5	-	-
2.	Amount of investment	30	40	-	-	Under the proposed section 32AC(1A)
	Deduction allowable	Nil	6	-	-
3.	Amount of investment	150	10	-	-	Under the existing section 32AC(1)
	Deduction allowable	22.5	1.5	-	-
4.	Amount of investment	60	20	-	-	No deduction either u/s 32AC(1) or 32AC(1A)
	Deduction allowable	Nil	NIl	-	-
5.	Amount of investment	30	30	30	40	Under the proposed section 32AC(1A)
	Deduction allowable	Nil	4.5	4.5	6
6.	Amount of investment	150	20	70	20	Deduction both u/s 32AC(1) & 32AC(1A)
	Deduction allowable	22.5	3	10.5	Nil

     These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years.

[Clause 11]

Investment allowance expanded: lower threshold and extended period to widen qualifying plant and machinery deductions. Section 32AC permits a 15% deduction of cost of new plant and machinery for manufacturing companies meeting prescribed investment thresholds. The proposal extends the qualifying period to 31 March 2017, lowers the single-year investment threshold for investments made on or after 1 April 2014, and preserves entitlement for companies meeting the earlier combined higher threshold across specified previous years. The amendment is intended to simplify eligibility, include medium-size investments, and takes effect from 1 April 2015 for the relevant assessment years.