Section 32AD of Income Tax Act, 1961: Investment in New Plant or Machinery in Notified Backward Areas
Section 32AD provided a 15% investment allowance for qualifying new plant and machinery installed by manufacturing undertakings in notified backward areas of Andhra Pradesh, Bihar, Telangana and West Bengal during the statutory 2015-2020 investment window.
What did Section 32AD allow?
Under Section 32AD(1), an eligible assessee establishing a manufacturing or production undertaking on or after 1 April 2015 in a Central Government-notified backward area of one of the four specified states could deduct 15% of the actual cost of eligible new plant or machinery acquired and installed there during the prescribed period. The deduction related to the assessment year for the previous year in which installation occurred.
Eligibility and investment period
| Condition | Requirement |
|---|---|
| Eligible activity | Manufacture or production of an article or thing |
| Undertaking set up | On or after 1 April 2015 |
| Location | Central Government-notified backward area in Andhra Pradesh, Bihar, Telangana or West Bengal |
| Investment window | 1 April 2015 to 31 March 2020 |
| Asset | Qualifying new plant or machinery acquired and installed for the undertaking |
| Deduction | 15% of actual cost, subject to the section's conditions |
The law required a notified backward area; merely operating in one of the four states did not suffice. The applicable government notification and district boundaries should be checked for the relevant period.
Meaning of new asset under Section 32AD(4)
A new asset meant new plant or machinery other than a ship or aircraft. The following were excluded:
- Previously used plant or machinery, whether used in India or abroad.
- Plant or machinery installed in office premises or residential accommodation, including a guest house.
- Office appliances, including computers and computer software.
- Vehicles.
- Plant or machinery whose entire actual cost was already deductible in a single previous year, by depreciation or otherwise.
Transfer within five years: Section 32AD(2) and (3)
If a qualifying asset was sold or otherwise transferred within five years of installation, the earlier Section 32AD deduction was generally treated as business income in the year of transfer, in addition to any taxable gains on the transfer. Certain amalgamations, demergers and business reorganisations covered by Section 47 were excepted from immediate clawback, with the relevant obligation passing to the successor as provided in Section 32AD(3).
Example of the investment allowance
If a qualifying manufacturing undertaking acquired and installed eligible new machinery costing Rs. 2 crore during the eligible period, the Section 32AD allowance could be Rs. 30 lakh (15% of Rs. 2 crore), assuming all statutory conditions were satisfied. This is a historical illustration, not a deduction available on a new 2026 purchase.
Income-tax Act, 2025 and earlier-year claims
The Income-tax Act, 2025 took effect on 1 April 2026. Its repeal and savings framework preserves the treatment of earlier tax years and relevant proceedings under the 1961 Act. Section 32AD should therefore still be examined for eligible historical claims, reassessments, appeals and asset-transfer consequences, rather than treated as a current investment incentive.
Official law and government guidance
- Income Tax Department: Section 32AD statutory text
- CBDT Circular No. 19/2015: Investment incentives
- Notification No. 85/2016: Notified districts in Andhra Pradesh
- Income Tax Department: Income-tax Act, 2025 transition guidance
Frequently asked questions
Is Section 32AD available for investments made in 2026?
No. The acquisition and installation window ended on 31 March 2020. The section remains relevant for earlier-year claims and proceedings.
What was the deduction under Section 32AD?
The deduction was 15 percent of the actual cost of qualifying new plant or machinery acquired and installed for a qualifying manufacturing undertaking in a notified backward area.
What happens if an eligible asset was transferred within five years?
The deduction could be brought back to tax as business income, subject to statutory exceptions for specified reorganisations.
Original Section 32AD statutory material
The following historical statutory material and insertion note are retained from the earlier page for reference. For authoritative wording applicable to a particular year, consult the official statutory text and amendments.
Read the complete original provision and amendment note
32AD Income Tax Act - Investment in new plant or machinery in notified backward areas in certain States Section 32AD of Income Tax Act 1961 - Investment in new plant or machinery in notified backward areas in certain States 1(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. (2) If any new asset acquired and installed by the assessee is sold or otherwise transferred, 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, within a period of five years from the date of its installation, the amount of deduction allowed under sub-section (1) 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 or re-organisation of business referred to in clause (xiii) or clause (xiiib) or clause (xiv) of section 47 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 or the successor referred to in clause (xiii) or clause (xiiib) or clause (xiv) of section 47, as the case may be, as they would have applied to the amalgamating company or the demerged company or the predecessor referred to in clause (xiii) or clause (xiiib) or clause (xiv) of section 47. (4) For the purposes of this section, "new asset" means any new plant or machinery (other than a ship or aircraft) but does not include- (a) any plant or machinery, which before its installation by the assessee, was used either within or outside India by any other person; (b) any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house; (c) any office appliances including computers or computer software; (d) any vehicle; or (e) 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. -------------------- 1. Ins. by Act 20 of 2015, s. 11 (w.e.f. 1-4-2016).
Last reviewed: 24 October 2026. This page provides general legal information, not advice on a particular assessment.