[Section 115BAB]: Special Provisions relating to Tax on Income of Certain New Manufacturing Domestic Companies

Section 115BAB: All Special Provisions relating to Rate of Income-Tax on Income of Certain New Manufacturing Domestic Companies are described below:

Section 115BAB: All Special Provisions relating to Rate of Income-Tax on Income of Certain New Manufacturing Domestic Companies are described below:

(1) [Section 115BAB (1)]: Rate of income-tax in case of a New Manufacturing Domestic Company

Notwithstanding anything contained in this Act but subject to the provisions of Chapter XII (other than those mentioned under section 115BA and section 115BAA), the income-tax payable in respect of the total income of a person, being a domestic company, for any previous year relevant to the assessment year beginning on or after 1.4.2020, shall, at the option of such person, be computed at the rate of 15%, if the conditions contained in section 115BAB (2) are satisfied.

(1A) Incomes other than derived from manufacturing or production and incomes in respect of which no specific rate of tax has been provided separately under Chapter XII to be taxed 22% [First Proviso to Section 115BAB (1)]

Where the total income of the person, includes any income,

• which has neither been derived from nor is incidental to manufacturing or production of an article or thing, and
• in respect of which no specific rate of tax has been provided separately under this Chapter (i.e., Chapter XII relating to determination of tax in certain special cases),

such income shall be taxed ( 22% and no deduction or allowance in respect of any expenditure or allowance shall be allowed in computing such income:

(1B) Income computed by the AO by applying the specified domestic provisions to be taxed @ 30% [Second proviso to Section 115BAB (1)]

The income-tax payable in respect of the income of the person deemed so under second proviso to section 115BAB (6) (see below) shall be computed @ 30%.

(1C) Short-term capital gain on transfer of a capital asset on which no depreciation is allowable to be taxed @ 22% [Third proviso to Section 115BAB (1)]

The income-tax payable in respect of income being short-term capital gains derived from transfer of a capital asset on which no depreciation is allowable under the Act shall be computed @ 22%.

(1D) Option to become invalid if the conditions contained in section 115BAB (2) are not satisfied [Fourth proviso to Section 115BAB (1)]

Where the person fails to satisfy the conditions contained in section 115BAB (2) (see below) in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and subsequent assessment years and other provisions of the Act shall apply to the person as if the option had not been exercised for the assessment year relevant to that previous year and subsequent assessment years.

(2) [Section 115BAB (2)]: Specified Conditions for Opting Provisions of Section 115BAB (1)

(a)        The company has been set-up and registered on or after 1. 10.2019, and has commenced manufacturing or production of an article or thing on or before 31.3.2023 [Extended to 31-3-2024 by the Finance Bill, 2022] and—

(i)         the business is not formed by splitting up, or the reconstruction, of a business already in existence:

Provided that this condition shall not apply in respect of a company, business of which is formed as a result of the re-establishment, reconstruction or revival by the person of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in the said section;

(ii)        does not use any machinery or plant previously used for any purpose.

(iii)       does not use any building previously used as a hotel or a convention centre, as the case may be, in respect of which deduction under section 80-ID has been claimed and allowed.

(b)        The company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it.

Explanation .—For the purposes of clause (b), the “business of manufacture or production of any article or thing” shall include the business of generation of electricity.

(c)        The total income of the company has been computed,—

(i)         without any—

—         deduction under the provisions of section 10AA (relating to special economic zone), or

—         benefit of accelerated depreciation/additional depreciation under section 32(1)(iia), or

—         benefit of investment allowance under section 32AD, or

—         deduction under section 33AB (relating to tea/coffee/rubber development account), or

—         deduction under section 33ABA (relating to site restoration fund), or

—         deduction under section 35(1)(ii) (relating to any sum paid to certain research associations or to a university, college or other institution to be used for scientific research),

—         deduction under section 35(1)(iia) (relating to any sum paid to a company to be used by it for scientific research),

—         deduction under section 35(1)(iii) (relating to any sum paid to certain research associations or to a university, college or other institution to be used for research in social science or statistical research),

—         deduction under section 35(2AA) (relating to any sum paid to a National Laboratory or a University or an Indian Institute of Technology or a specified person to be used for scientific research undertaken under an approved programme

—         deduction under section 35(2AB) (relating to any expenditure incurred on in- house scientific research and development facility (not being expenditure in the nature of cost of any land or building) by a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule

—         deduction under section 35AD (relating to deduction on account of capital expenditure on specified business), or

—         deduction under section 35CCC (relating to agricultural extension project), or

—         deduction under section 35CCD (relating to skill development project), or

—         deduction under any provisions of Chapter VI-A under the heading “C. i.e. – Deductions in respect of certain incomes”

W.e.f. AX. 2021-22, no deduction under Chapter VIA except deduction uls. 80JJAA and 80M will be allowed.

(ii)        without set off of any loss or allowance for unabsorbed depreciation deemed so under section 72A where such loss or depreciation is attributable to any of the deductions referred to in sub-clause (i) above;

Explanation.—For the removal of doubts, it is hereby clarified that in case of an amalgamation, the option under section 115BAB(7) shall remain valid in case of the amalgamated company only and if the conditions contained in section 115BAB(2) are continued to be satisfied by such company; and

(iii)       by claiming the depreciation under the provisions of section 32, except clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed.

(3)   [Section 115BAB(3)]: Loss referred to in clause (ii) of section 115BAB(2)(c) above to be deemed to have been already given full effect to

The loss referred to in clause (ii) of section 115BAB(2)(c) above, shall be deemed to have been given full effect to and no further deduction for such loss shall be allowed for any subsequent year.

(4)   [Section 115BAB(4)]: Board with the approval of Central Government empowered to issue guidelines for the purpose of any difficulty

if any difficulty arises regarding fulfilment of the conditions contained in sub-clause (ii) or sub-clause (iii) of clause (a) of section 115BAB(2) or clause (b) of said section, as the case may be, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty and to promote manufacturing or production of article or thing using new plant and machinery.

(5)  [Section 115BAB(5)]: Guidelines issued by the Board under section 115BAB(4) to be laid before each House of Parliament and shall be binding on the person and department

Every guideline issued by the Board under section 115BAB(4) shall be laid before each House of Parliament, and shall be binding on the person, and the income-tax authorities subordinate to it.

(6)   [Section 115BAB(6)]: How to compute profit where there is close connection between the company and any other person

Where it appears to the Assessing Officer that, owing to the close connection between the person to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the person more than the ordinary profits which might be expected to arise in such business, the Assessing Officer shall, in computing the profits and gains of such business for the purposes of this section, take the amount of profits as may be reasonably deemed to have been derived therefrom.

Provided that in case the aforesaid arrangement involves a specified domestic transaction referred to in section 92 BA, the amount of profits from such transaction shall be determined having regard to arm’s length price as defined in clause (ii) of section 92F:

Provided further that the amount, being profits in excess of the amount of the profits determined by the Assessing Officer, shall be deemed to be the income of the person.

(7)   [Section 115BAB (7)]:  Assessee to opt for section 115BAB in the prescribed manner and before the specified date

Nothing contained in section 115BAB shall apply unless the option is exercised by the person in the prescribed manner (See rule 21AF below and Form No. 10-ID) on or before the due date specified under section 139(1) for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after 1.4.2020 and such option once exercised shall apply to subsequent assessment years.

Provided that once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.

Exercise of option under Section 115BAB (7) [Rule 21AF]

(1)        The option to be exercised in accordance with the provisions of section 115BAB (7) by a person, being a domestic company, for any previous year relevant to the assessment year beginning on or after 1.4.2020, shall be in Form No. 10-ID.

(2)  The option in Form No. 10-ID shall be furnished electronically either under digital signature or electronic verification code.

(3)  The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall—

(i)  specify the procedure for filing of Form No. 10-ID;

(ii)  specify the data structure, standards and manner of generation of electronic verification code, referred to in rule 21AF (2), for verification of the person furnishing the said Form; and

(iii)  be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the Form so furnished.

(8) Rate of Income-Tax on Total Income if the New Manufacturing Domestic Company opts for Section 115BAB

(9) Surcharge on Income-Tax on Total Income Computed under Section 115BAB

Provided that in respect of any income chargeable to tax under section 11 5BAB of the Income-tax Act, the tax computed above shall be increased by a surcharge, for the purposes of the Union, calculated at the rate of 10%.

(10) Health and Education Cess (H&EC)

Further H&EC @ 4% shall be levied on the total tax (including surcharge) payable by the assessee.