My client set up a manufacturing unit in a notified backward area in Bihar and installed machinery in 2019. Is the section 32AD allowance available, does it have to be a company, and what happens if the machinery is transferred?
Section 32AD was inserted by the Finance Act, 2015 with effect from 1 April 2016 and gives a deduction of fifteen per cent of the actual cost of new assets to an assessee who sets up an undertaking or enterprise for the manufacture or production of any article or thing ON OR AFTER 1 April 2015 in a backward area notified by the Central Government in the State of Andhra Pradesh, Bihar, Telangana or West Bengal, and who acquires and installs new assets for that undertaking in that backward area during the period beginning 1 April 2015 and ending before 1 April 2020. The deduction is given for the assessment year relevant to the previous year in which the new asset is INSTALLED. Two things distinguish it from section 32AC. It is not confined to companies — the words are "an assessee" — and there is no minimum investment threshold at all, so a modest installation qualifies where section 32AC would have required twenty-five or a hundred crore rupees. The window is hard: assets installed on or after 1 April 2020 are outside the section, which means the last assessment year the deduction can arise in is AY 2020-21. Sub-section (2) imposes a five-year lock-in from the date of installation, and its carve-out is wider than section 32AC's: transfers in connection with an amalgamation, a demerger, or a re-organisation of business referred to in clause (xiii), clause (xiiib) or clause (xiv) of section 47 are excluded, and sub-section (3) then passes the clawback to the amalgamated company, the resulting company or the successor.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2016-04-01, reported as Section 32AD of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-32ad (heading "Investment in new plant or machinery in notified backward areas in certain States", Year: 2015) and confirmed word for word on /w/section-32ad-1 (Year: 2016) and /w/section-32ad-2 (Year: 2017). It bears on section 32AD, section 32AD(1), section 32AD(2), section 32AD(3), section 32AD(4), section 47(xiii), section 47(xiiib), section 47(xiv), section 32AC of the Income Tax Act 1961, in Deductions & Disallowances, How Tax Law Is Read and Capital Gains matters.
This is a geography-and-date provision and every one of its four conditions is a place where a claim fails. The undertaking must be SET UP on or after 1 April 2015 — an existing unit that merely expands does not qualify, because the section attaches to the setting up. The area must be a backward area NOTIFIED by the Central Government in one of four named States; a unit in a backward district of any other State is outside the section however poor the district. Both the acquisition and the installation must be in the notified backward area and within the 1 April 2015 to 31 March 2020 window. And the deduction attaches to the year of installation, so a company that acquired plant in March 2020 and commissioned it in May 2020 has nothing, because the installation falls outside the window. The wider carve-out in sub-sections (2) and (3) is worth noting for restructuring: as well as amalgamation and demerger, section 32AD spares a conversion of a firm or a proprietary concern into a company under section 47(xiii) or 47(xiv) and a conversion of a private company or an unlisted public company into an LLP under section 47(xiiib), and in each case the successor inherits the five-year obligation. Section 32AC has no such carve-out and no such transfer of obligation for those re-organisations. The exclusions from "new asset" in sub-section (4) are the same five as in section 32AC: previously used plant, plant installed in office premises or residential accommodation including a guest house, office appliances including computers and computer software, vehicles, and plant whose whole actual cost is already allowed as a deduction.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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The operative words, as transcribed: "32AD. (1) Where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new asset for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020 in the said backward area, then, there shall be allowed a deduction of a sum equal to fifteen per cent of the actual cost of such new asset for the assessment year relevant to the previous year in which such new asset is installed." Sub-section (2) brings the deduction back as business income of the year of transfer where the new asset is sold or otherwise transferred within five years from the date of its installation, "except in connection with the amalgamation or demerger or re-organisation of business referred to in clause (xiii) or clause (xiiib) or clause (xiv) of section 47". Sub-section (3) applies sub-section (2) to the amalgamated company, the resulting company or the successor referred to in those clauses of section 47 where the transfer is by one of those routes within the five years. Sub-section (4) defines "new asset" as any new plant or machinery other than a ship or aircraft, excluding plant previously used within or outside India by any other person, plant installed in office premises or residential accommodation including accommodation in the nature of a guest house, office appliances including computers or computer software, any vehicle, and plant the whole of whose actual cost is allowed as a deduction in computing business income of any previous year.
Not a judgment. The statutory position is that section 32AD gives fifteen per cent of the actual cost of new assets to any assessee, not only a company, which sets up an undertaking or enterprise for manufacture or production of an article or thing on or after 1 April 2015 in a Central Government notified backward area in Andhra Pradesh, Bihar, Telangana or West Bengal and acquires and installs new assets there between 1 April 2015 and 31 March 2020; that there is no minimum investment; that the deduction falls in the assessment year relevant to the previous year of installation, so the last year it can arise in is AY 2020-21; and that a sale or transfer within five years of installation brings the deduction back as business income of the year of transfer unless the transfer is in connection with an amalgamation, a demerger or a section 47(xiii), (xiiib) or (xiv) re-organisation, in which case the successor takes over the obligation.
Not a judgment; no judicial reasoning is stated for the section itself.
acquires and installs any new asset for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020 in the said backward area, then, there shall be allowed a deduction of a sum equal to fifteen per cent of the actual cost of such new asset for the assessment year relevant to the previous year in which such new asset is installed.
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Handle my notice → Ask a CA on WhatsAppSection 32AD was inserted by the Finance Act, 2015 with effect from 1 April 2016 and gives a deduction of fifteen per cent of the actual cost of new assets to an assessee who sets up an undertaking or enterprise for the manufacture or production of any article or thing ON OR AFTER 1 April 2015 in a backward area notified by the Central Government in the State of Andhra Pradesh, Bihar, Telangana or West Bengal, and who acquires and installs new assets for that undertaking in that backward area during the period beginning 1 April 2015 and ending before 1 April 2020. The deduction is given for the assessment year relevant to the previous year in which the new asset is INSTALLED. Two things distinguish it from section 32AC. It is not confined to companies — the words are "an assessee" — and there is no minimum investment threshold at all, so a modest installation qualifies where section 32AC would have required twenty-five or a hundred crore rupees. The window is hard: assets installed on or after 1 April 2020 are outside the section, which means the last assessment year the deduction can arise in is AY 2020-21. Sub-section (2) imposes a five-year lock-in from the date of installation, and its carve-out is wider than section 32AC's: transfers in connection with an amalgamation, a demerger, or a re-organisation of business referred to in clause (xiii), clause (xiiib) or clause (xiv) of section 47 are excluded, and sub-section (3) then passes the clawback to the amalgamated company, the resulting company or the successor. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 32AD, section 32AD(1), section 32AD(2), section 32AD(3), section 32AD(4), section 47(xiii), section 47(xiiib), section 47(xiv), section 32AC of the Income Tax Act 1961. It is reported as Section 32AD of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-32ad (heading "Investment in new plant or machinery in notified backward areas in certain States", Year: 2015) and confirmed word for word on /w/section-32ad-1 (Year: 2016) and /w/section-32ad-2 (Year: 2017). This is a geography-and-date provision and every one of its four conditions is a place where a claim fails. The undertaking must be SET UP on or after 1 April 2015 — an existing unit that merely expands does not qualify, because the section attaches to the setting up. The area must be a backward area NOTIFIED by the Central Government in one of four named States; a unit in a backward district of any other State is outside the section however poor the district. Both the acquisition and the installation must be in the notified backward area and within the 1 April 2015 to 31 March 2020 window. And the deduction attaches to the year of installation, so a company that acquired plant in March 2020 and commissioned it in May 2020 has nothing, because the installation falls outside the window. The wider carve-out in sub-sections (2) and (3) is worth noting for restructuring: as well as amalgamation and demerger, section 32AD spares a conversion of a firm or a proprietary concern into a company under section 47(xiii) or 47(xiv) and a conversion of a private company or an unlisted public company into an LLP under section 47(xiiib), and in each case the successor inherits the five-year obligation. Section 32AC has no such carve-out and no such transfer of obligation for those re-organisations. The exclusions from "new asset" in sub-section (4) are the same five as in section 32AC: previously used plant, plant installed in office premises or residential accommodation including a guest house, office appliances including computers and computer software, vehicles, and plant whose whole actual cost is already allowed as a deduction. If it applies to you, the first step is this: Check the notification before anything else. The area must be one notified by the Central Government under this section, in Andhra Pradesh, Bihar, Telangana or West Bengal. Get the notification number and the district or block on the record; I have not verified any list of notified areas and this entry does not supply one.
The operative words, as transcribed: "32AD. (1) Where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new asset for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020 in the said backward area, then, there shall be allowed a deduction of a sum equal to fifteen per cent of the actual cost of such new asset for the assessment year relevant to the previous year in which such new asset is installed." Sub-section (2) brings the deduction back as business income of the year of transfer where the new asset is sold or otherwise transferred within five years from the date of its installation, "except in connection with the amalgamation or demerger or re-organisation of business referred to in clause (xiii) or clause (xiiib) or clause (xiv) of section 47". Sub-section (3) applies sub-section (2) to the amalgamated company, the resulting company or the successor referred to in those clauses of section 47 where the transfer is by one of those routes within the five years. Sub-section (4) defines "new asset" as any new plant or machinery other than a ship or aircraft, excluding plant previously used within or outside India by any other person, plant installed in office premises or residential accommodation including accommodation in the nature of a guest house, office appliances including computers or computer software, any vehicle, and plant the whole of whose actual cost is allowed as a deduction in computing business income of any previous year. The matter was decided on 2016-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Not a judgment. The statutory position is that section 32AD gives fifteen per cent of the actual cost of new assets to any assessee, not only a company, which sets up an undertaking or enterprise for manufacture or production of an article or thing on or after 1 April 2015 in a Central Government notified backward area in Andhra Pradesh, Bihar, Telangana or West Bengal and acquires and installs new assets there between 1 April 2015 and 31 March 2020; that there is no minimum investment; that the deduction falls in the assessment year relevant to the previous year of installation, so the last year it can arise in is AY 2020-21; and that a sale or transfer within five years of installation brings the deduction back as business income of the year of transfer unless the transfer is in connection with an amalgamation, a demerger or a section 47(xiii), (xiiib) or (xiv) re-organisation, in which case the successor takes over the obligation.
Not a judgment; no judicial reasoning is stated for the section itself. In the words reproduced by the source cited on this page: "acquires and installs any new asset for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020 in the said backward area, then, there shall be allowed a deduction of a sum equal to fifteen per cent of the actual cost of such new asset for the assessment year relevant to the previous year in which such new asset is installed."
It was decided by the CBDT Circulars & Instructions on 2016-04-01 and is reported as Section 32AD of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-32ad (heading "Investment in new plant or machinery in notified backward areas in certain States", Year: 2015) and confirmed word for word on /w/section-32ad-1 (Year: 2016) and /w/section-32ad-2 (Year: 2017). Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 32AD, section 32AD(1), section 32AD(2), section 32AD(3), section 32AD(4), section 47(xiii), section 47(xiiib), section 47(xiv), section 32AC, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Not a judgment. The statutory position is that section 32AD gives fifteen per cent of the actual cost of new assets to any assessee, not only a company, which sets up an undertaking or enterprise for manufacture or production of an article or thing on or after 1 April 2015 in a Central Government notified backward area in Andhra Pradesh, Bihar, Telangana or West Bengal and acquires and installs new assets there between 1 April 2015 and 31 March 2020; that there is no minimum investment; that the deduction falls in the assessment year relevant to the previous year of installation, so the last year it can arise in is AY 2020-21; and that a sale or transfer within five years of installation brings the deduction back as business income of the year of transfer unless the transfer is in connection with an amalgamation, a demerger or a section 47(xiii), (xiiib) or (xiv) re-organisation, in which case the successor takes over the obligation. It arises in Deductions & Disallowances, How Tax Law Is Read and Capital Gains matters, on section 32AD, section 32AD(1), section 32AD(2), section 32AD(3), section 32AD(4), section 47(xiii), section 47(xiiib), section 47(xiv), section 32AC of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Establish the date the undertaking or enterprise was SET UP. It must be on or after 1 April 2015; a pre-existing unit that adds capacity does not become eligible by installing new plant. Date the installation, not the purchase. The deduction falls in the assessment year relevant to the previous year of installation, and the installation must be before 1 April 2020, so the last year in which a claim can arise is AY 2020-21. Do not assume a corporate requirement. Unlike section 32AC, section 32AD says 'an assessee', so a firm, an LLP or an individual running the undertaking can claim, and there is no monetary threshold. On any transfer within five years of installation, check the carve-out carefully: amalgamation, demerger and the section 47(xiii), (xiiib) and (xiv) re-organisations are outside sub-section (2), but sub-section (3) then makes the successor answerable for the balance of the five years. Raise this in due diligence on any conversion or merger of a backward-area unit. Do not read across from this entry to whether a section 32AC deduction can also be claimed on the same asset. Neither section contains an express bar, but I could not source the position and it is not stated here.
Still good law. The text is verified on three departmental pages carrying different "Year:" stamps (2015, 2016 and 2017) which print it identically, and the commencement is taken from the footnote on the Year 2016 page. The section remains on the statute book but its acquisition-and-installation window closed on 31 March 2020, so no fresh deduction can arise after AY 2020-21; the five-year clawback in sub-section (2) can still operate in a later year. The latest page I could locate is stamped Year 2017 and I did not check judicial treatment of this section at all — I found no decided case on it during this pass. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Section 32AD was transcribed in full from https://incometaxindia.gov.in/w/section-32ad on a fetch required to state the Act name, the heading and the "Year:" stamp and forbidden to answer "absent"; it returned the Income-tax Act, 1961, the heading "Investment in new plant or machinery in notified backward areas in certain States" and Year: 2015. Sub-section (1) was transcribed again from /w/section-32ad-1 (Year: 2016) and /w/section-32ad-2 (Year: 2017); all three pages print identical text, so no amendment occurred between 2015 and 2017. Commencement is the department's own footnote on the Year 2016 page: "Inserted by the Finance Act, 2015, w.e.f. 1-4-2016." TWO GAPS I DID NOT CLOSE. First, the most recent departmental page I could locate for this section is stamped Year 2017; I probed suffixes 1 and 2 only, so an amendment after 2017 cannot be excluded on this evidence — though the section's own window closed on 31 March 2020 and an amendment would be unlikely to affect years still open. Second, THE NOTIFIED BACKWARD AREAS ARE NOT STATED IN THE SECTION and I did not retrieve any notification listing them; the Year 2016 page carries a footnote directing the reader to a Taxmann publication for the list, which is not a source this library uses, so the list is simply absent from this entry and a reader must obtain the notification itself. I did not establish whether section 32AC and section 32AD can both be claimed on the same asset, and I did not verify any relationship between section 32AD and the additional depreciation at a higher rate that the proviso to section 32(1)(iia) allows for undertakings in the same four States; neither point is stated here. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Not a judgment. The statutory position is that section 32AD gives fifteen per cent of the actual cost of new assets to any assessee, not only a company, which sets up an undertaking or enterprise for manufacture or production of an article or thing on or after 1 April 2015 in a Central Government notified backward area in Andhra Pradesh, Bihar, Telangana or West Bengal and acquires and installs new assets there between 1 April 2015 and 31 March 2020; that there is no minimum investment; that the deduction falls in the assessment year relevant to the previous year of installation, so the last year it can arise in is AY 2020-21; and that a sale or transfer within five years of installation brings the deduction back as business income of the year of transfer unless the transfer is in connection with an amalgamation, a demerger or a section 47(xiii), (xiiib) or (xiv) re-organisation, in which case the successor takes over the obligation.
TaxSphere, “Statutory position — s.32AD: the fifteen per cent backward-area investment allowance — four States only, a window that closed on 31 March 2020, and a lock-in that is not the same as s.32AC's”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-32ad-backward-area-investment-allowance-four-states-the-2015-to-2020-window-and-the-five-year-lock-in/ (validity last checked 2026-09-09)
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