With both Houses of Parliament havingtelangana passed the Andhra Pradesh Reorganisation Bill,2014, Telangana eventually become the newest 29th State of the Indian Union. After sixty years of tenacious struggle the people of the Telangana region have, defying all odds and sacrificing countless precious lives, been able to secure for themselves a separate State. This is indeed of historic importance and the people of Telangana are justifiably feeling jubilant.

Section 94 of the Andhra Pradesh Reorganization Act, 2014 inter alia provides that the Central Government shall take appropriate fiscal measures, including offer of tax incentives to the State of Andhra Pradesh and the State of Telangana, to promote industrialization and economic growth in both the States.

Manufacturing sector plays significant role in the economic growth of any region even the Modi’s Government also put emphasis on “Make In India” campaign. Therefore, in order to encourage the setting up of industrial undertakings in the backward areas of the State of Andhra Pradesh and the State of Telangana, it is proposed to provide following Income tax incentives.-

Additional Investment Allowance

It is proposed to insert a new section 32AD in the Act to provide for an additional investment allowance of an amount equal to 15% of the cost of new asset acquired and installed by an assessee, if—

(a)He sets up an undertaking or enterprise for manufacture or production of any article or thing on or after 1st  April, 2015 in any notified backward areas in the State of Andhra Pradesh and the State of Telangana; and

(b)The new assets are acquired and installed for the purposes of the said undertaking or enterprise during the period beginning from the 1stApril, 2015 to 31stMarch, 2020.

Note 1:- This deduction shall be available over and above the existing deduction available under section 32AC of the Act.

Accordingly, if an undertaking is set up in the notified backward areas in the States of Andhra Pradesh or Telangana by a company, it shall be eligible to claim deduction under the existing provisions of section 32AC of the Act as well as under the proposed section 32AD if it fulfills the conditions (such as investment above a specified threshold) specified in the said section 32AC and conditions specified under the proposed section 32AD.

Hence, assessee will avail extra 30% deduction (i.e. 15% of 32AC+ 15% of 32AD) over and above normal depreciation claimed on eligible machinery under section 32 of the act.

Note 2:- The phrase “new asset” has been defined as plant or machinery but does not include

  • any plant or machinery which before its installation by the assessee was used either within or outside India by any other person;
  • Any plant or machinery installed in any office premises or any residential accommodation. including accommodation in the nature of a guest house:
  • any office appliances including computers or computer software;
  • any vehicle:
  • Any ship or aircraft; or (vi) any plant or machinery the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.

Note 3 :-With a view to ensure that the manufacturing units which are set up by availing this proposed incentive actually contribute to economic growth of these backward areas by carrying out the activity of manufacturing for a substantial period of time:-

It is proposed to provide suitable safeguards for restricting the transfer of the plant or machinery for a period of 5 years.

However, this restriction shall not apply to the amalgamating or demerged company or the predecessor in a case of amalgamation or demerger or business reorganisation but shall continue to apply to the amalgamated company or resulting company or successor as the case may be.

Additional Depreciation at the rate of 35%

To incentivise investment in new plant or machinery, additional depreciation of 20% is allowed under the existing provisions of section 32(1)(iia) of the Act in respect of the cost of plant or machinery acquired and installed by certain assessees.

This depreciation allowance is allowed over and above the deduction allowed for general depreciation under section 32(1)(ii) of the Act.

In order to incentivise acquisition and installation of plant and machinery for setting up of manufacturing units in the notified backward area in the State of Andhra Pradesh or the State of Telangana, it is proposed to allow higher additional depreciation at the rate of 35% (instead of 20%) in respect of the actual cost of new machinery or plant (other than a ship and aircraft) acquired and installed by a manufacturing undertaking or enterprise which is set up in the notified backward area of the State of Andhra Pradesh or the State of Telangana on or after the First day of April 2015.

This higher additional depreciation shall be available in respect of acquisition and installation of any new machinery or plant for the purposes of the said undertaking or enterprise during the period beginning on the 1stday of April, 2015 and ending before the 1stday of April, 2020.

The eligible machinery or plant for this purpose shall not include the machinery or plant which are currently not eligible for additional depreciation as per the existing proviso to section 32(1)(iia) of the Act.

The above newbie provisions definitely encourage manufacturing companies to setup plant in the aforesaid Areas/State which will lead to economic growth & development and boost up “Make In India” Campaign.


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