With much discourse in the air on reintroducing investment allowance for companies going with new projects or building productive assets for expansion, the finance ministry is is gathering arguments from different sections. The ministry is itself in a fix over the proposal and has sought industry consultation over implementation of investment allowance.
As per the Income Tax Act, 1961, investment allowance for expenditure incurred by industry on plant and machinery is no more in place retrospectively from April 1990, after which companies could not claim a tax deduction of an amount equal to 20% of the cost of plant and machinery installed or put to use while arriving their profits from business.
The then finance minister Madhu Dandavate had argued that his Budget had reduced the burden of the corporation tax rate by 10 percentage points to 40-50% and hence incentives and concessions like the investment allowance needed to be scrapped in order to improve the government’s tax kitty.
On the other hand, proponents of a reintroducing the investment allowance are contending that owing to widened fiscal deficit of the government , across-the-board cut in corporation tax rates is not warranted. Hence, it has been advised that the ministry must take into account this concession to keep investments intact at the time of global economic slump.