Changes in PR 6/2012
1. Minimum Period of operation to be eligible for RA claim
-prior to YA2009, not less than 12 months
-w.e.f Ya2009, not less than 36 months
2. RA as an incentive
- 60% of qualifying capital expenditure
- deductible against 70% of statutory income (promoted area 100%)
- w.e.f 2012 restricted to 70% of statutory income (promoted /non-promoted area)
3. Qualifying Project
- Prior to YA2009
A project undertaken by a company, in expanding, modernization or automating its existing business in respect of manufacturing or processing of a product or any related product within the same industry or in diversifying its existing business into any related product within the same industry.
- From YA2009
to exclude processing, the above definition was amended to -
a project undertaken by a company, in expanding, modernizing or automating its existing business in respect of manufacturing of a product or any related product within the same industry or in diversifying its existing business into any related product within the same industry.
4. Meaning of manufacturing and processing
- Prior to YA2009
Manufacturing
Manufacturing is the making of articles by physical labour or machinery. It is the creation of something which did not exist in that form prior to the manufacturing process. The element of change is an important characteristic in manufacturing. Manufacturing for the purposes of Schedule 7A of the ITA 1967 are basically divided into two categories:
(a) different in character and form, for example, wood to paper, and
(b) no change in character but change in form, for example, wood to furniture.
Processing
(a) Processing is the subjection of goods to a process which means, goods or materials are subjected to a process which falls short of the manufacturing of a new article and involves the treatment of the goods in some way, other than natural growth.
(b) technique of preparation, handling or other activity designed to effect a physical or chemical change in an article or substance.
(c) Processing also connotes a substantial measure of uniformity of treatment or system of treatment. Thus, where each product is treated individually according to the specifications required, it cannot be regarded as being subjected to a process within the meaning of Schedule 7A of the ITA 1967.
(d) a product has gone through a series of actions that are systematic, has a higher value than before and accepted by the market.
-From YA2009
Manufacturing
Manufacturing for the purpose of RA is defined as -
(a) conversion by manual or mechanical means of organic or inorganic materials into a new product by changing the size, shape, composition, nature or quality of such materials
(b) assembly of parts into a piece of machinery or products, or
(c) mixing of materials by a chemical reaction process including biochemical process that changes the structure of a molecule by the breaking of the intra molecular bonds or by altering the spatial arrangement of atom in the molecule.
(d) Manufacturing does not include –
(i) the installation of machinery or equipment for the purpose of construction
(ii) a simple packaging operations such as bottling, placing in boxes, bags and cases
(iii) a simple fixing
(iv) a simple mixing of any products
(v) a simple assembly of parts
(vi) any activity to ensure the preservation of products in good condition during transportation and storage
(vii) any activity to facilitate shipment and transportation
(viii) any activity of packaging or presenting goods for sale, or
(ix) [Prescription Of Activity Excluded From The Definition Of Manufacturing] Rules 2012 - P.U.(A) 23 (Appendix C).
Simple mean an activity which does not need special skills, machines, apparatus or equipment specially produced or installed for carrying out the activity.
w.e.f YA2009, processing is no longer a qualifying activity for RA purpose
5. Meaning of qualifying project
- increase in production capacity or performance (saving in time, material, labour or better quality)
- expenditure on purchase, addition to or replacement of existing assets or parts is not eligible for RA (unless for qualifying project)
a) Expansion project
- increase in demands to a product and result in increased production capacity, capacity utilization, increase in production output and sales
b) Modernization project
- upgrading of manufacturing equipment and process to achieve greater efficiency in production, improvement in qualify of product and/or reduction in costs
c) Automation
- process whereby manual operations are substituted by mechanical operation with human judgement and control
d) Diversifying project
- to produce additional or new related product/s within the same industry
6) Meaning of factory
- From YA2012
Factory mean:-
a) building used for the purpose of qualifying project to place or install plant or machinery or to store any raw material, or goods or materials manufactured prior to sales
b) building used for storage of raw material or goods and shall not be more than 1/10 of the total floor areas
-not include building used for R&D
-not include building used for staff welfare e.g canteen, nursery, accommodation, sport and recreation
-company renting a factory may claim RA on qualifying expenditure incurred for qualifying project
-relocating the manufacturing activity to new location or change of ownership of factory not qualify for RA
Qualifying period
-15 consecutive years of assessment, calculated from the YA in which qualifying capital expenditure was first claimed
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