Home»Blog»Income Tax»Section 32AD of the Income Tax Act: Investments in Notified Backward Areas in India
Section 32AD of the Income Tax Act: Investments in Notified Backward Areas in India
19 May 2022
The Government of India aims to develop every backward region in the country irrespective of how remote it is. With that in mind, Section 32AD of Income Tax Act has come into effect which encourages both corporates and non-corporates to set up plants or machinery in GoI-specified areas.
Read on to learn more details.
What is Section 32AD of Income Tax?
Section 32AD of Income Tax Act provides a legal framework for investment in new plants/machinery in notified areas of certain states.
Which are the States under Section 32AD of Income Tax?
Section 32AD will be applicable if an assessee sets up a manufacturing or production unit in any notified area in the following states:
Which are the Notified Backward Areas under Section 32AD of Income Tax?
Given below are the details of notified backward areas.
Notified areas of Andhra Pradesh under section 32AD are listed as follows:
List of notified areas of Bihar is as follows:
Provided below is the list of notified areas in Telangana:
Given below is the list of notified areas in West Bengal:
South 24 Parganas
Provisions of Section 32AD of Income Tax Act
As mentioned above, Section 32AD has stated provisions for investment in new plants or machinery in notified backward areas in selected states.
The details of the provisions under this Section are as follows:
Section 32AD (1) of ITA
A taxpayer can avail deductions for setting up an undertaking/enterprise during April 1 2015 to April 1 2020 for manufacture/production in notified areas. It is applicable if the entity sets up a new asset for the undertaking/enterprise.
However, the undertaking/enterprise has to be in a notified area in any of the states of Andhra Pradesh, Bihar, Telangana and West Bengal.
The taxpaying entity can avail a deduction of anything equal to 15% of the actual cost of the new asset in the assessment year against the previous year in which the new asset was set up.
Section 32AD (2) of ITA
IT officials deem the deduction amount under (1) as income if the taxpayer sells the new asset within 5 years of its installation. This income is chargeable under the taxpayer’s profits and gains of businesses or professions’ in the previous year.
Additionally, tax is charged on profits caused by the sale/transfer.
However, it is not applicable if a merger/demerger/reorganization of the business takes place under section 47.
Section 32AD (3) of ITA
Suppose the taxpayer sells/transfers the new asset during the merger/demerger/reorganisation of a business, as per select clauses of Section 47. In that case, the provision given under sub-section (2) will be applicable for the resulting company.
One should note that the sale/transfer has to occur within 5 years of installing the new asset.
Section 32AD (4) of ITA
‘New asset’ includes plant or machinery (except ships or aircraft).
Given below is the list of items and things that do not fall under the term ‘new asset’:
Plant or machinery used by another person within/outside India before its installation
Any plant or machinery set up in any office space and residential accommodation, including guest houses
An appliance used in offices, including computers and computer software
Any plant or machinery whose actual cost is allowed as a deduction in computing the income chargeable under ‘profits and gains of businesses or profession’ of a previous year
Also read: https://navi.com/blog/section-32-of-income-tax-act/
To sum up, Section 32AD of Income Tax Act encourages taxpaying entities to set up manufacturing or production units in notified areas in the states of Andhra Pradesh, Bihar, Telangana and West Bengal. This guide provides the details of the sub-sections under section 32AD and the list of the notified areas.
FAQs on Section 32AD of the Income Tax Act
Q1. What is Section 47?
Section 47 of Income Tax Act deals with transactions that do not fall under ‘transfers’. The gains arising from such transactions do not fall under capital gain tax primarily because the transferor doesn’t earn any taxable income from these transactions.
Q2. What is Section 32AC?
Section 32AC provides the guidelines for investments into new plants or machinery. As per this Section, tax-paying entities can avail deductions if the aggregate amount of the actual cost of a new asset exceeds Rs. 100 Crore. However, the new asset will have to be acquired and installed between March 31, 2013 and April 1, 2015.
Q3. What is Section 35AD of ITA?
Certain business sectors have been identified by GoI as integral growth drivers of the country. The Government of India has introduced Section 35AD into ITA to encourage these businesses. As per the provisions under section 35AD, these businesses can avail of deductions. A business that is covered under this Section is the business of operating a cross-country petroleum or natural gas, or crude oil pipeline network.
Q4. What are ‘profits and gains of business or profession’?
‘Profits and gains of business or profession’ cover the income that one earns from their profession or business. The IT department charges tax on the amount, the difference between the credits received for running the business and the expenses incurred.
Q5. What is additional depreciation under the Income Tax Act?
The Government of India allows depreciation to be counted as an expense for the computation of income. Generally, there are two ways of calculating depreciation – Straight Line Method (SLM) and Written Down Value (WDV). As per the Income Tax Department rules, the WDV method of depreciation has to be used.
Before you go…
Looking for instant 🚀 personal loans 24*7 anywhere, anytime? Get personal loans up to ₹20 lakh starting at 9.9% p.a. Install the Navi app now!!
Or, maybe you’re looking to buy that house you’ve been eyeing 🏠 and you need a loan of up to ₹5 crore. Install the Navi app now and get instant in-principle approval right away! Interest rates starting at 8.39% p.a.
How about an affordable health insurance policy👨⚕️ starting at a monthly premium of just ₹235? Install the Navi app now and get your policy in under 2 minutes.
Instead, want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research. Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
Vikram Kirloskar Origins – From Bicycle Repair Shop to Toyota
Facial Recognition-based Entry System in Airport Launched. Know More!
15 Best Christmas Gift Ideas Even Santa Wouldn’t Ignore
RBI Launches Digital Rupee – Is it Like Crypto?
The G.O.A.T. – Messi’s 7 Life-Changing Quotes You Can’t Ignore
Mercedes or SIPs – Indians Tweet Their First Choice
How to Open Demat Account: Fees, Eligibility, Documents
Udd Gaye Totey: 9 Funny Tweets that Got Indians ROFL
10 Best Places to Celebrate New Year 2023 in India
We are a diverse group of writers, editors and Subject Matter Experts striving to bring the most accurate, authentic and trustworthy finance and finance-related information to our readers. Our mission is to simplify jargon and industry lingo. We believe sharing knowledge through relatable content is a powerful medium to empower, guide and shape the mindset of a billion people of this country.
What is Section 80D of Income Tax Act: Deductions for Medical & Health Insurance
Section 80D of the Income Tax Act, 1961, offers health insurance policyholders tax benefits to redu...Read More »
Section 115BAA of Income Tax Act
The Government of India brought in multiple amendments to the Income Tax Act of 1961 through the Ta...Read More »
Best Tax Saving SIPs in 2023: 10 ELSS Funds You Can Consider Investing In Through SIPs
SIP or Systematic Investment Plan is one of the most effective tax-saving instruments. You can clai...Read More »
Professional Tax: 2023 Slab Rates, Exemptions & Applicability In India
Professional tax in India is levied on anyone who is employed. From professionals such as accountan...Read More »
What is Profit After Tax and How is it Calculated? Why is it Important for Companies?
An essential step for all organisations is to ensure that they continuously monitor the amounts of ...Read More »
What is Accounting Equation – Meaning, Formula and Calculation with Example
Regardless of the size of the company, financial statements are created using a basic accounting eq...Read More »
Cost Inflation Index: What is CII and How is it Calculated?
The price of commodities rises over time, reducing the purchasing power of money, which is the numb...Read More »
What is White-Collar Crime and What is the Penalty?
White shirts, black coats and well-ironed ties are typical stereotypes representing the rich and el...Read More »
Form 12B – Its Significance in Income Tax and How to fill it
When you join a new company in the middle of a financial year, you must complete several formalitie...Read More »
What is Cash Memo, Its Benefits and How to Create It?
All transactions in accounting must have accurate documentation as proof of financial trail. Docume...Read More »
What is Condonation of Delay in Law? What are its General Principles?
As per the Indian law, there is a certain time frame to submit all forms and applications to the Re...Read More »
Foreign Exchange Management Act (FEMA): Its Regulations and Penalties
Import and export are essential components of the aggregate trade that occurs in India. Import-expo...Read More »
Diwali 2022: Diwali Holidays – The Festival of Lights
The ‘Festival of Lights’ is one of the biggest and most anticipated festivals in India. This is...Read More »
Best Index Funds – Top 20 Index Funds in India
Index funds replicate the performance of a stock market index, such as the Sensex or Nifty 50 to ge...Read More »