INDEX
- Overview of Section 115BA of the Income Tax Act
Conditions for Qualifying Under Section 115BA
Deductions Not Allowed Under Section 115BA
Manufacturing Businesses Exempt from Section 115BA
Tax Rates Under Section 115BA
Section 115BA of Income Tax Act: Reduced Tax rate for Manufacturing Co.
Overview of Section 115BA of the Income Tax Act: Tax Rate for Manufacturing Companies
Section 115BA of the Income Tax Act prescribes the tax rates applicable to domestic manufacturing companies under specific conditions. For manufacturing businesses that meet the provisions outlined in Chapter XII (excluding Sections 115BAA and 115BAB), the tax rate is set at 25%.
According to Section 115BA, domestic manufacturing companies can avail themselves of the reduced tax rate without any specific time limit. They can opt for the benefits of Section 115BAB at any point, provided they adjust any brought forward losses before making the election.
However, to ensure that the tax rate remains at 25%, certain conditions must be met.
Conditions for Qualifying Under Section 115BA
To be eligible for the benefits under Section 115BA, manufacturing companies must adhere to the following criteria:
- Establishment Date: The company must be incorporated and commence its operations on or after 1st March 2016.
- Business Type: The company must exclusively engage in the manufacturing business that involves producing tangible articles or things. This includes activities related to research and the distribution of these manufactured goods.
- No Previous Claims for Other Deductions: The company should not have claimed any deductions under the Income Tax Act, such as those under Sections 10AA, 32AD, 33ABA, 35, etc., which cover a wide range of incentives like deductions for special economic zones, backward areas, and specific industries.
- Restriction on Chapter VI-A Deductions: Companies opting for Section 115BA cannot claim deductions under Chapter VI-A (Deductions in respect of certain incomes), including provisions under Sections 80H to 80TT, except for Section 80JJAA.
- Timing of Option: The option to avail benefits under Section 115BA must be exercised before the due date for filing the Income Tax Return (ITR).
- Election to Opt for Section 115BAA: A company can choose to opt out of the benefits of Section 115BA only if it decides to avail the benefits under Section 115BAA.
- Form Submission: As per the rules of the Central Board of Direct Taxes (CBDT), the election must be made using Form 10-IB, which should be filed online using either an EVC or digital signature.
Deductions Not Allowed Under Section 115BA
While calculating the total income tax under Section 115BA, certain deductions are disallowed. These include:
- Section 10AA: Deductions for units in Special Economic Zones (SEZ).
- Section 32AD: Deductions for expenditure on machinery and new plants in backward areas (e.g., Bihar, West Bengal, Telangana, Andhra Pradesh).
- Section 33AB: Deductions for the rubber industry, tea, and coffee production.
- Section 33ABA: Deposits made to the site restoration fund by petroleum and natural gas companies.
- Sections 32AC, 35(1)(ii)/(iia)/(iii), 35(2AA)/(2AB): Various other specific deductions.
- Section 35AD: Capital expenditure for certain businesses.
- Section 35CCC & 35CCD: Investment in agricultural extension projects and skill development.
- Sections 80H to 80TT: Deductions except for Section 80JJAA related to employment of new workers.
- Section 32: Additional deductions related to depreciation.
- Losses Carried Forward: Losses from the above deductions cannot be carried forward to future years.
Manufacturing Businesses Exempt from Section 115BA
Certain businesses are excluded from the benefits of Section 115BA. These include:
- Mining.
- Books printing or cinematograph film production.
- Bottling of gas into cylinders.
- Conversion of marble blocks into polished slabs.
- Other businesses notified by the Central Government.
Tax Rates Under Section 115BA
The tax rates applicable to manufacturing companies under Section 115BA are as follows:
- 25% Tax: For eligible manufacturing companies.
- Surcharge: A surcharge of 7% applies if income exceeds Rs. 1 crore and 12% if income exceeds Rs. 10 crore.
- Health and Education Cess: A 4% cess on the total tax liability, including any surcharge, is applicable.
- Minimum Alternate Tax (MAT): A 15% MAT on book profits will apply if the tax calculated as per the above provisions is less than 15% of book profits.
Conclusion
Section 115BA of the Income Tax Act provides a tax-friendly option for eligible manufacturing companies, offering a 25% tax rate along with certain deductions and exemptions. However, companies must meet specific conditions, such as operating after March 1, 2016, and refraining from claiming certain deductions. It is crucial for business owners to carefully assess their eligibility, understand the exclusions, and file the necessary forms to optimize their tax liabilities effectively.