Section 32AC Income Tax Act 1961: Investment in New Plant or Machinery
Section 32AC of the Income-tax Act, 1961 introduced an additional investment allowance for qualifying manufacturing companies acquiring and installing new plant or machinery. The incentive was time-limited and is not available for fresh claims for assessment year 2018-19 onwards.
Section 32AC at a glance
| Provision | Historical rule |
|---|---|
| Section 32AC(1) | 15% allowance for manufacturing companies investing more than Rs 100 crore in qualifying new assets during the prescribed 2013-15 period, subject to year-specific computation. |
| Section 32AC(1A) | 15% allowance where qualifying new assets acquired in a previous year exceeded Rs 25 crore and were installed by 31 March 2017. |
| Section 32AC(1B) | No deduction under subsection (1A) for assessment years beginning on or after 1 April 2018. |
| Section 32AC(2)-(3) | Clawback on transfer within five years, with special treatment for amalgamation and demerger. |
| Section 32AC(4) | Definition of new asset and exclusions. |
Who qualified for the deduction?
The claimant had to be a company engaged in manufacture or production of an article or thing. Under subsection (1), the relevant acquisition and installation window was after 31 March 2013 and before 1 April 2015, with an aggregate cost threshold exceeding Rs 100 crore. The allowance for assessment year 2014-15 was computed on qualifying 2013-14 acquisitions if the threshold was met; the assessment year 2015-16 computation accounted for any amount already deducted.
Under subsection (1A), the actual cost of qualifying new assets acquired during a previous year had to exceed Rs 25 crore, and installation had to occur by 31 March 2017. Where acquisition and installation occurred in different years, the deduction was allowed in the year of installation. A company eligible under subsection (1) for assessment year 2015-16 could not also claim subsection (1A) for that year.
Meaning of new asset under Section 32AC(4)
A new asset meant new plant or machinery, excluding ships and aircraft. The definition excluded previously used machinery or plant, installations in offices or residential premises (including guest houses), office appliances (including computers and software), vehicles, and machinery or plant whose entire actual cost was otherwise deductible in a single previous year.
Sale or transfer within five years
Under subsection (2), if a qualifying asset was sold or otherwise transferred within five years from installation, the earlier Section 32AC deduction was treated as business income in the year of transfer, in addition to any taxable gain. Transfers connected with amalgamation or demerger are addressed by subsection (3): the relevant rule applies to the amalgamated or resulting company.
Illustrative historical calculation
If a qualifying manufacturer acquired new eligible machinery costing Rs 30 crore in a relevant previous year and installed it by 31 March 2017, the historical 15% allowance under subsection (1A) would have been Rs 4.5 crore, assuming all statutory conditions were satisfied. This is an illustration of the expired incentive, not a deduction available on a new 2026 investment.
Current tax law and official references
For tax years beginning on or after 1 April 2026, consult the Income Tax Department guidance on the Income-tax Act, 2025. For historical cases, consult the official Section 32AC text, the Income-tax Act, 1961 as amended, and CBDT Circular 3/2017 concerning the installation timing amendment.
Historical statutory text and amendment notes
The original webpage's statutory provisions and amendment notes are retained below for reference. Superscript-style amendment numbers in the archived source are editorial annotations rather than part of the operative clauses.
Read the archived Section 32AC text and amendment notes
1(1) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new asset after the 31st day of March, 2013 but before the 1st day of April, 2015 and the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees, then, there shall be allowed a deduction,-
(a) for the assessment year commencing on the 1st day of April, 2014, of a sum equal to fifteen per cent. of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2014, if the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees; and
(b) for the assessment year commencing on the 1st day of April, 2015, of a sum equal to fifteen per cent. of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2015, as reduced by the amount of deduction allowed, if any, under clause (a).
2 (1A) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new assets and the amount of actual cost of such new assets 3 acquired during any previous year exceeds twenty-five crore rupees and such assets are installed on or before the 31st day of March, 2017, then, there shall be allowed a deduction of a sum equal to fifteen per cent. of the actual cost of such new assets for the assessment year relevant to that previous year:
4 Provided that where the installation of the new assets are in a year other than the year of acquisition, the deduction under this sub-section shall be allowed in the year in which the new assets are installed:
5 Provided further that no deduction under this sub-section shall be allowed for the assessment year commencing on the 1st day of April, 2015 to the assessee, which is eligible to claim deduction under sub-section (1) for the said assessment year.
(1B) No deduction under sub-section (1A) shall be allowed for any assessment year commencing on or after the 1st day of April, 2018.
(2) If any new asset acquired and installed by the assessee is sold or otherwise transferred, except in connection with the amalgamation or demerger, within a period of five years from the date of its installation, the amount of deduction allowed under sub-section (1) 6 or sub-section (1A) in respect of such new asset shall be deemed to be the income of the assessee chargeable under the head "Profits and gains of business or profession" of the previous year in which such new asset is sold or otherwise transferred, in addition to taxability of gains, arising on account of transfer of such new asset.
(3) Where the new asset is sold or otherwise transferred in connection with the amalgamation or demerger within a period of five years from the date of its installation, the provisions of sub-section (2) shall apply to the amalgamated company or the resulting company, as the case may be, as they would have applied to the amalgamating company or the demerged company.
(4) For the purposes of this section, "new asset" means any new plant or machinery (other than ship or aircraft) but does not include-
(i) any plant or machinery which before its installation by the assessee was used either within or outside India by any other person;
(ii) any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house;
(iii) any office appliances including computers or computer software;
(iv) any vehicle; or
(v) 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.
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1. Ins. by Act 17 of 2013, s. 6 (w.e.f. 1-4-2014).
2. Ins. by Act 25 of 2014, s. 11 (w.e.f. 1-4-2015).
3. Subs. by Act 28 of 2016, s. 14, for "acquired and installed during any previous year exceeds twenty-five crore rupees" (w.e.f. 1-4-2016).
4. The proviso inserted by s. 14, ibid. (w.e.f. 1-4-2016).
5. Subs. by s. 14, ibid., for "Provided that" (w.e.f. 1-4-2016).
6. Ins. by Act 25 of 2014, s. 11 (w.e.f. 1-4-2015)
Frequently asked questions
Can a company claim Section 32AC for machinery bought in 2026?
No. Section 32AC was a time-bound incentive and is not available for new 2026 acquisitions.
Was the deduction separate from depreciation?
Yes. Section 32AC provided a historical investment-linked allowance subject to its own eligibility rules; ordinary depreciation was governed separately by Section 32.
Did a transfer of machinery trigger tax?
Transfer within five years could trigger recovery of the earlier allowance as business income, subject to the amalgamation and demerger rules.