Budget 2015- Allowance of balance 50% additional depreciation

To encourage investment in plant or machinery by the manufacturing and power sector, additional depreciation of 20% of the cost of new plant or machinery acquired and installed is allowed under the existing provisions of section 32(1)(iia) of the Act over and above the general depreciation allowance. On the lines of allowability of general depreciation allowance, the second proviso to section 32(1) inter alia provides that the additional depreciation would be restricted to 50% when the new plant or machinery acquired and installed by the assessee, is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in the previous year. Non-availability of full 100% of additional depreciation for acquisition and installation of new plant or machinery in the second half of the year may motivate the assessee to defer such investment to the next year for availing full 100% of additional depreciation in the next year. To remove the discrimination in the matter of allowing additional depreciation on plant or machinery used for less than 180 days and used for 180 days or more, it is proposed to provide that the balance 50% of the additional depreciation on new plant or machinery acquired and used for less than 180 days which has not been allowed in the year of acquisition and installation of such plant or machinery, shall be allowed in the immediately succeeding previous year.

This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.

NOTE ON RELEVANT CLAUSES  OF FINANCE BILL 2015
 10. Amendment of section 32.
 Clause 10 of the Bill seeks to amend section 32 of the Income tax Act relating to depreciation.

The existing provisions contained in the second proviso to sub¬section (1) of the aforesaid section 32 provide that where an asset referred to in clause (i) or clause (ii) or clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under sub-section (1) in respect of such asset shall be restricted to fifty per cent. of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii) or clause (iia), as the case may be.

It is proposed to insert a proviso after the second proviso to sub-section (1) of section 32 so as to provide that where an asset referred to in clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business for a period of less than one hundred and eighty days in that previous year and the deduction under sub-section (1) in respect of such asset is restricted to fifty per cent. of the amount calculated at the percentage prescribed for an asset under clause (iia) for that previous year, then, the deduction for the balance fifty per cent. of the amount calculated at the percentage prescribed for such asset under clause (iia) shall be allowed under sub-section (1) in the immediately succeeding previous year in respect of such asset.

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent years.

EXTRACT OF RELEVANT CLAUSES FROM FINANCE BILL 2015

10. Amendment of section 32.

In section 32 of the Income-tax Act, in sub-section (1), with effect from the 1st day of April, 2016,—

(a) in clause (ii),—

(A)     in the second proviso, after the words, brackets, figures and letter “asset referred to in  clause (i) or clause (ii) or clause (iia)”, the words, brackets, figures and letter “or the first proviso to clause (iia)” shall be inserted;

(B)     after the second proviso, the following proviso shall be inserted, namely:—

Provided also that where an asset referred to in clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business for a period of less than one hundred and eighty days in that previous year, and the deduction under this sub-section in respect of such asset is restricted to fifty per cent. of the amount calculated at the percentage prescribed for an asset under clause (iia) for that previous year, then, the deduction for the balance fifty per cent. of the amount calculated at the percentage prescribed for such asset under clause (iia) shall be allowed under this sub-section in the immediately succeeding previous year in respect of such asset:”;

(b) in clause (iia),—

(A)     in the proviso, for the word “Provided”, the words “Provided further” shall be substituted;

(B)     before the proviso, the following proviso shall be inserted, namely:—

 “Provided that 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 Telangana, and acquires and installs any new machinery or plant (other than ships and aircraft) 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, the provisions of clause (iia) shall have effect, as if for the words “twenty per cent.”, the words “thirty-five per cent.” had been substituted:”.

( Compiled Jointly  by CA Ankit Banka with Taxguru Team)

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Category : Income Tax (24919)
Type : Articles (13997)
Tags : Budget (1473) Budget 2015-16 (272) section 32 (121)

8 responses to “Additional depreciation on Plant or machinery used for less than 180 days”

  1. mohini jain says:

    a manufacturer purchased a machine for manufacturing purpose on 31 march 2005 and it was in operation more than 180 days . what will be the rate of additional depreciation in the above case ?

  2. Dhara Santwani says:

    Is Additional Depreciation can be provided in addition to existing plant and machinery?

  3. Kiran Kumar M says:

    Is it mandatory to claim additional depreciation or can I choos not to claim at all ..any thoughts around that

  4. sangeetha says:

    what are the consequences if assets are purchased before 1.4.2015? whether remaining 50% can be claimed in the AY 2016-17

  5. Vijay Patil says:

    By virtue of this amendment, remaining 50% additional depreciation can be claimed in next year. what would be the situation, if the assessee company get amalgamated with other company & asset is transferred to amalgamated company in year of acquisition.

    Whether remaining 50% additional depreciation can be claimed by amalgamated company in next year ?

    The provisions of Section 32 doesn’t cover such situation and in absence of any specific provision as of now, its a disputed one.

  6. Abhinav says:

    What if we sold the assets in which we claim 50% additional depreciation last year and also used more than 180days in current year?

  7. r m raja says:

    i think all the above amendment should be effective from 1st April 2015 & not in 2016

  8. motichand gupta says:

    Thanks.

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