Section 115BAB of the Income Tax Act, introduced in September 2019, offers a lower corporate tax rate for newly incorporated domestic companies engaged in the manufacturing or production of goods. This provision aims to encourage the manufacturing sector in India and increase investment in the industry. In this blog, we will discuss the key features of Section 115BAB and its implications for companies.
Eligibility Criteria
To be eligible for the lower tax rate under Section 115BAB, a company must fulfill the following conditions:
- It must be a domestic company incorporated on or after 1 October 2019.
- Its primary objective should be the manufacture or production of any article or thing.
- It should not have claimed any deductions or benefits under certain specified provisions such as Section 10AA, Section 32, Section 35AD, etc.
- It should not be engaged in any business other than the manufacture or production of articles or things, research about such articles or things, or distribution of such articles or things manufactured or produced by it.
If the above conditions are met, the eligible company can opt for a lower tax rate of 15% on its total income. This rate is applicable for the assessment year 2020-21 and subsequent years. However, the company must not avail of any other tax incentives or exemptions to qualify for this rate. Also, the tax rate is subject to surcharge and cess as applicable.
Transition Provisions
The companies that are eligible for the lower tax rate under Section 115BAB can opt out of the concessional tax regime and opt for the existing tax regime, which allows for deductions and exemptions. However, once a company opts out of the concessional tax regime, it cannot opt back in again. Companies that have opted for the concessional tax regime under Section 115BAB cannot claim any deduction or allowance under any other provision of the Income Tax Act.
Implications for Companies
Section 115BAB is a welcome move by the government to encourage manufacturing in India. It will benefit newly incorporated companies engaged in the manufacture or production of goods, by offering a lower tax rate and making their operations more profitable. It will also attract foreign investment in the manufacturing sector and boost job creation in the country.
However, companies need to carefully evaluate the eligibility criteria and the implications of opting for the concessional tax regime before making a decision. They need to weigh the benefits of a lower tax rate against the restrictions on claiming deductions and exemptions. They also need to assess whether their operations are aligned with the conditions laid down in the section.
Final Conclusion
Section 115BAB of the Income Tax Act offers a lower tax rate for newly incorporated companies engaged in the manufacture or production of goods. This provision aims to promote manufacturing in India and attract investment in the sector. Companies need to evaluate the eligibility criteria and the implications of opting for the concessional tax regime before making a decision. The provision is a step towards making India a manufacturing hub and will benefit the economy in the long run.
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 about Section 115BAB of the Income Tax Act:
What is Section 115BAB of the Income Tax Act?
Section 115BAB of the Income Tax Act offers a lower corporate tax rate of 15% to newly incorporated domestic companies engaged in the manufacture or production of goods.
Who is eligible for the lower tax rate under Section 115BAB?
To be eligible for the lower tax rate, a company must be a domestic company incorporated on or after 1 October 2019 and its primary objective should be the manufacture or production of any article or thing. Additionally, it should not have claimed any deductions or benefits under certain specified provisions such as Section 10AA, Section 32, Section 35AD, etc.
What is the tax rate for companies under Section 115BAB?
The tax rate for eligible companies is 15% of their total income. However, this tax rate is subject to surcharge and cess as applicable.
Can companies claim deductions or exemptions under any other provision of the Income Tax Act if they opt for the concessional tax regime under Section 115BAB?
No, companies that have opted for the concessional tax regime under Section 115BAB cannot claim any deduction or allowance under any other provision of the Income Tax Act.
Can companies opt out of the concessional tax regime under Section 115BAB?
Yes, companies that have opted for the concessional tax regime under Section 115BAB can opt out of it and opt for the existing tax regime, which allows for deductions and exemptions. However, once a company opts out of the concessional tax regime, it cannot opt back in again.
How will Section 115BAB benefit the Indian economy?
Section 115BAB is expected to encourage investment in the manufacturing sector and promote job creation in the country. It will also attract foreign investment in the manufacturing sector and boost the economy in the long run.
