Section 115BAB: Corporate Tax for New Manufacturing Companies
The Taxation Laws (Amendment) Ordinance, passed on the 20th of September 2019, has inserted Section 115BAB. This section deals with the corporate tax rates for new manufacturing companies. The domestic companies engaged in the manufacturing or production of goods in India are eligible to avail of the benefits. To facilitate the local businesses and manufacturing units, the government introduced this section so that eligible businesses can realize their untapped potential. Lower tax rates enable businesses to improve cash flow, resulting in better operational efficiency. Registered manufacturing entities, established on or after the 1st of October 2019, can pay the corporate tax at a reduced rate of 15% (excluding additional Cess and surcharge). This article has covered all aspects related to Section 115BAB of the Income Tax Act 1961.
Eligible Companies under Section 115BAB
Indian companies that meet the following points are eligible for u/s 115BAB. The company
- Is set up and registered on or after 1st of October 2019 and has started manufacturing on or before the 31st of March 2024
- Is not formed either by splitting up or reconstructing an existing business, except in the case of a business organization covered u/s 33B
- Not using previously used plant or machinery except in case of imported plant or machinery not used in India before
- Not using any building used as a hotel or a convention center before as per section 80-ID
- Income is computed irrespective of claiming any deduction under chapter VI-A (excluding section 80JJAA and 80M) or section 10AA
- It is opted voluntarily to furnish details and claim benefits under section 115BAB, as once such option of income tax return filing at lower rates is exercised u/s 115BAB, it cannot be revoked in that assessment year
- The company does not claim any set off of losses and unabsorbed depreciation
- The company does not claim deductions u/s 33AB for coffee, rubber, tea manufacturing companies, and does not claim deductions u/s 35AD (capital expenditure), 35CCC (agriculture extension projects), 35CCD (skill development projects), 32AD (investment allowance), and 32 (additional depreciation for new plant and machinery)
Tax Rates u/s 115BAB for Corporate Companies
If companies opt for filing the returns under section 115BAB, the following will be the effective rates
| Base Rate | Surcharge | Cess | Effective Rate |
| 15% | 10% | 4% | 15*1.1*1.04= 17.16% |
Companies can save a lot on taxes when they opt for filing returns under this section. In normal cases, the companies that have not opted to pay taxes under section 115BAB can pay at approximately 30% approximately while the effective rate is just 17.16% otherwise. Get your business registered to make use of lower tax rates.
Applicability of Transfer Pricing
In case the company gets more than ordinary profits or outperforms the estimates due to special deals or bonds it has with other businesses, the excess profits will be disregarded, and the assessing officer will consider the profit as made reasonably.
Under section 92BA, business gains from specified domestic transactions will be calculated with respect to the Arm’s Length Price (based on the fair market price). Reach out to TaxDunia to get a better understanding of the laws and how to utilize them for optimum results.
FAQs
- How to register under section 115BAB?
Companies have to file Form 10-ID to get the benefits at the effective rate of 17.16%, including cess and surcharge.
- Is MAT still applicable for companies if they have already switched to section 115BAB?
The MAT or minimum alternate tax does not apply to companies that have switched to pay taxes under section 115BAB of the Income Tax Act.
- How can companies opt out of section 115BAB?
Companies cannot opt out of section 115BAB if they have switched to pay taxes under this section for a particular financial year. They have to abide by it in the subsequent assessment year.
