Understanding Section 115BA of the Income Tax Act for New Manufacturing Companies

Section 115BA of the Income Tax Act: Understanding the Provisions

Section 115BA of the Income Tax Act was introduced in the Union Budget of 2016 to provide a concessional tax regime for new domestic manufacturing companies. This section provides certain benefits and incentives to encourage investment and boost the growth of the manufacturing sector in India. In this blog, we will discuss the provisions of Section 115BA in detail.

Introduction to Section 115BA

Section 115BA of the Income Tax Act applies to new manufacturing companies that are incorporated after October 1, 2019, and commence their operations before April 1, 2023. These companies can opt to pay tax at a lower rate of 15% (plus surcharge and cess) on their total income if they fulfill certain conditions.

Conditions to be fulfilled

To avail the benefits under Section 115BA, a new manufacturing company needs to meet the following conditions:

1. It must be incorporated on or after October 1, 2019, and must commence its operations before April 1, 2023.
2. The company must not be formed by splitting up or reconstructing an existing business.
3. The company must not use any building previously used as a hotel or a convention center.
4. The company must not use any machinery or plant previously used in India by any other person.
5. The company must not engage in any business other than the business of manufacture or production of any article or thing.

Benefits under Section 115BA

A new manufacturing company that fulfills the conditions mentioned above can opt to pay tax at a lower rate of 15% (plus surcharge and cess) on its total income. This concessional tax rate is applicable for the first 10 years from the year of commencement of operations.

In addition to the lower tax rate, the new manufacturing company can also claim certain other benefits, which are as follows:

1. No deduction under Chapter VI-A: The company cannot claim any deduction under Chapter VI-A of the Income Tax Act, which includes deductions for investments, donations, and other expenses.
2. No set-off or carry forward of losses: The company cannot set off or carry forward any losses from any earlier years. However, it can carry forward and set off the depreciation allowance.
3. No MAT: The company is not required to pay Minimum Alternate Tax (MAT) under Section 115JB of the Income Tax Act.
4. No DDT: The company is not required to pay Dividend Distribution Tax (DDT) on the dividends distributed to its shareholders.

Benefits of Section 115BA for New Manufacturing Companies

1. Boost for new manufacturing companies: Section 115BA provides a boost for new manufacturing companies, especially those that are incorporated after October 1, 2019. By offering a lower tax rate of 15%, this section encourages new businesses to set up manufacturing units and contribute to the growth of the Indian economy.
2. Attractive for foreign investors: The concessional tax rate and other benefits under Section 115BA make it attractive for foreign investors to invest in new manufacturing companies in India. This can bring in more foreign direct investment (FDI) and create job opportunities for the local population.
3. Tax savings: The lower tax rate of 15% under Section 115BA can result in significant tax savings for new manufacturing companies, especially during the initial years of their operations. This can help them channel their resources towards business expansion and development.
4. Simplified tax compliance: The conditions for availing the benefits under Section 115BA are straightforward, making it easier for new manufacturing companies to comply with tax regulations. This can save them time and effort, which can be utilized towards business growth.
5. No MAT and DDT: The exemption from MAT and DDT under Section 115BA is a significant advantage for new manufacturing companies. This can help them conserve cash flow and reinvest in their businesses.

Conclusion

Section 115BA of the Income Tax Act provides a concessional tax regime for new manufacturing companies to boost the manufacturing sector in India. The provisions of this section offer various benefits and incentives to encourage investment and promote growth. However, the eligibility criteria and conditions to avail these benefits must be carefully evaluated before opting for this regime. It is advisable to consult a tax expert to understand the implications of this section on the business operations and tax liability of the company.

Read more useful content:

• section 234e of income tax act
• section 286 of income tax act
• section 90a of income tax act
• section 40a(7) of income tax act
• section 226(3) of income tax act
• section 24 of income tax act

Frequently Asked Questions (FAQs)

What is Section 115BA of the Income Tax Act?
Section 115BA is a provision in the Income Tax Act that provides a concessional tax regime for new manufacturing companies in India. It allows eligible companies to pay tax at a lower rate of 15% (plus surcharge and cess) on their total income.

Who can avail of the benefits under Section 115BA?
New manufacturing companies that are incorporated after October 1, 2019, and commence their operations before April 1, 2023, can avail of the benefits under Section 115BA.

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What are the conditions to be fulfilled to avail of the benefits under Section 115BA?
The new manufacturing company must meet certain conditions, such as being incorporated after October 1, 2019, and before April 1, 2023, and not engaging in any business other than the business of manufacture or production of any article or thing.

How long are the benefits under Section 115BA applicable?
The concessional tax rate of 15% (plus surcharge and cess) is applicable for the first 10 years from the year of commencement of operations for eligible new manufacturing companies.

Can a new manufacturing company opt-out of the benefits under Section 115BA?
Once a new manufacturing company opts to be taxed under Section 115BA, it cannot opt-out for the next 10 years.

Can new manufacturing companies claim any deductions under Chapter VI-A of the Income Tax Act?
No, new manufacturing companies cannot claim any deductions under Chapter VI-A of the Income Tax Act.

Are new manufacturing companies required to pay Minimum Alternate Tax (MAT) under Section 115BA?
No, new manufacturing companies are exempt from paying MAT under Section 115BA.

Can new manufacturing companies set off or carry forward losses under Section 115BA?
No, new manufacturing companies cannot set off or carry forward any losses from any earlier years under Section 115BA. However, they can carry forward and set off the depreciation allowance.

Are new manufacturing companies required to pay Dividend Distribution Tax (DDT) under Section 115BA?
No, new manufacturing companies are exempt from paying DDT on the dividends distributed to its shareholders.

What is the objective of Section 115BA of the Income Tax Act?
The objective of Section 115BA is to encourage investment and boost the growth of the manufacturing sector in India by providing a concessional tax regime for eligible new manufacturing companies.