Budget 2016: RIL, Adani, Tata Steel to benefit from extension of investment allowance

With the government allowing Indian companies to avail themselves of investment allowance by one more year in the Budget announced on Monday, companies like Reliance Industries, the Adani Group and Tata Steel, which are currently in investment mode, will be the biggest beneficiary of 15% allowance. It will come into effect with retrospective effect from April 1, 2015.

The Income Tax Act specifies that manufacturing companies can avail themselves of the investment allowance at the rate of 15% on investments made in new assets such as plant and machinery exceeding Rs 25 crore so long as the acquisition and installation of the asset is undertaken in the same year. The Bill proposes to do away with the requirement that the asset should be acquired and installed in the same year. The Budget this year also proposes to allow companies to avail themselves of the allowance so long as the assets are installed on or before 31 March 2017. The investment allowance was first introduced by the UPA government few years ago to push investments in the country.

“The introduction of the grace period for installation signifies that the Government is in sync with ground issues faced by the manufacturing sector and is a welcome move,” said a lawyer with Khaitan & Co. This amendment is proposed to be made retrospectively effective from FY16 onwards.

RIL is nearing the completion of its largest ever capex program worth a massive $46 billion (Rs 3.12 lakh crore) over the last few four years. This includes investment of over Rs one lakh crore in wireless telephony alone, which would be launched nationwide by the middle of this year. The investment allowance benefit extension by one more year will encourage RIL to invest in new capacities.

Tata Steel is another large company, which is investing in creating new capacities in Kalinganagar, Odisha even as its European assets are facing strong headwinds. The Kalinganagar plant has a capacity of six million tonne per annum (mtpa) and in the first phase, three mtpa steel would be produced by next fiscal onwards.

Similarly, in August last year, Adani Group had announced an investment of Rs 25,200 crore for two major power projects in Chhattisgarh, and an another Rs 21,000 crore in energy, port and renewable energy projects in Karnataka apart from investing in a new port project in Kerala.

But there are also few companies like Birla-owned Ultratech and Hindalco and the JSW Group, who do not plan to press the pedal on capex spend, but are planning to spend more cash in acquiring assets as lenders put more assets on the block of the defaulting companies.