INDEX
- Introduction
- Key Features
- Eligibility Criteria
- Tax Benefits
- Exclusions
Section 115BAB of Income Tax Act: Tax Rate for New Manufacturing Companies
Introduction
Section 115BAB of the Income Tax Act offers a concessional tax rate of 15% for domestic manufacturing companies, provided they meet specific conditions. This initiative was introduced to boost the “Make in India” campaign and support industrial investment. Companies opting for this benefit are exempt from Minimum Alternate Tax (MAT), but must forgo certain deductions and incentives available under the Income Tax Act.
Key Features:
- Effective from FY 2019-20 (AY 2020-21).
- Tax Rate: 15% plus a 10% surcharge and 4% cess, resulting in an effective tax rate of 17.16%.
- Companies must start production by March 31, 2024 and be registered after October 1, 2019.
- Exclusions: No deductions for items like depreciation under Section 32(1)(iia), investment allowances, or deductions under Sections 33AB, 35, 35AD, etc.
- Ineligible Activities: Businesses like mining, bottling of gas, and book printing are not eligible.
Eligibility Criteria:
- Must be newly incorporated after October 1, 2019.
- Must not claim deductions under specific sections of the Income Tax Act.
- Cannot involve in activities like mining or gas bottling.
Tax Benefits:
- Concessional tax rate of 15% for eligible companies.
- No MAT for businesses opting for Section 115BAB.
- No carry forward of losses or unabsorbed depreciation from previous years.
Exclusions:
- Companies involved in activities like mining, book printing, and cylinder bottling are not eligible.
- Companies must not use deductions from sections like 80-IA, 80-IB, or 10AA (SEZ).
Conclusion:
Section 115BAB offers a competitive tax rate for new manufacturing companies but requires strict adherence to conditions. It encourages industrial growth and job creation while promoting easier business operations under India’s Make in India initiative.