Navigating India's tax landscape can often feel like unravelling a maze of intricate laws & overlooked opportunities. However, for manufacturers, there’s one provision that could significantly benefit your business—Section 32AC of the Income Tax Act. Crafted to stimulate capital investment, this section provides substantial deductions for companies investing in new plant & machinery. With the government's "Make in India" initiative at its core, Section 32AC is not just a tax benefit but a powerful tool designed to fuel growth, modernisation, & job creation in the manufacturing sector.
Let's break it down to gain a better understanding.
🔍 What is Section 32AC of the Income Tax Act?
Section 32AC was introduced by the Finance Act, 2013, to offer tax incentives for investment in new assets. It allowed Indian companies engaged in manufacturing or production to claim a deduction under section 32AC of the Income Tax Act if they purchased & installed new plant & machinery within a specific period.
This section is different from the regular depreciation provisions under Section 32. It provided additional benefits over & above normal depreciation.
🏭 Who Can Claim Section 32AC Deduction?
Not every business can take advantage of this section. Here’s who qualifies:
- Only Indian companies (not individuals, HUFs, LLPs, or foreign companies)
- The company must be engaged in the manufacturing or production of goods
- Investment must be in new assets (not second-hand or used)
- The minimum investment threshold must be met during the relevant period
Let’s now explore the detailed eligibility for deduction under section 32AC.
🧾 Eligibility Criteria for Deduction under Section 32AC of the Income Tax Act
Section 32AC had two phases of benefit:
- For Assessment Years 2014-15 & 2015-16:
- The company must invest more than ₹100 crore in new plant & machinery.
- Dedication allowed: 15% of the actual cost of new assets acquired & installed during the year.
- From Assessment Year 2016-17 onwards (until 2017-18):
- The deduction continued at 15%, but the threshold for new investment was reduced to ₹25 crore.
- Dedication is allowed only if the new asset was acquired & installed within the same financial year.
Note: This section is no longer in force after AY 2017-18, but understanding it remains important for past assessments, compliance, or when evaluating historical tax benefits."
💼 What Qualifies as a “New Asset”?
According to Section 32AC(1), “new asset” refers to new plant or machinery, other than:
- Ships or aircraft
- Any office appliances or road transport vehicles
- Second-hand machinery
- Any asset acquired by transfer or through a scheme of amalgamation
So, if you're investing in heavy equipment for production, the section 32AC deduction might have significantly reduced your tax liability in the eligible years.
💸 How is Section 32AC Different from Section 32AD?
You may have also heard of Section 32AD — both sections offer tax benefits on asset investments. However, the difference lies in the geography & period:
- Section 32AC applied pan-India (entire country)
- Section 32AD was introduced later & applies only to investment in notified backwards areas.
Also, the deduction under section 32AD is different from the deduction under section 32AC in terms of additional compliance conditions & investment benefits.
📌 Key Takeaways for Section 32AC of Income Tax
- Aimed at encouraging capital investment in manufacturing.
- Offers a 15% deduction over & above normal depreciation.
- Benefits are available only to companies, not individuals or firms.
- Investment must be in new plant & machinery only.
- This section is no longer applicable post AY 2017-18, but useful for understanding past benefits or facing tax scrutiny."
📊 Practical Example
Imagine an Indian manufacturing company invests ₹120 crore in new machinery during FY 2015-16. Under section 32AC, the company could claim an additional deduction of ₹18 crore (15% of ₹120 crore). This deduction directly reduces taxable profits, leading to substantial tax savings.
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