In the earlier blog, we understood the concept of Debenture Redemption Reserve in a bit of detail. In this blog, we will look at Investment allowance reserve.
The Investment Allowance Reserve is a sort of legacy and has been phased out now. The Income Tax act allowed a special allowance for the company to invest in plant and machinery - Investment Allowance. A condition for this allowance was that the company had to transfer a specific percentage of the amount of the allowance to a reserve called Investment Allowance Reserve. The balance in this account couldn’t be used for distribution to shareholders as dividends or bonus shares for eight years from the year of investment.
This allowance has been removed from the IT act since 2001-02
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