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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.?
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 |
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
View Answer| 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-
