Special Provisions for New Manufacturing Domestic Companies under Section 115BAB

Section 115BAB of the Income Tax Act, 1961 provides a concessional tax rate of 15% (plus surcharge & cess) for new domestic manufacturing companies, subject to strict eligibility conditions. Introduced in 2019, this provision aims to boost India’s manufacturing sector under the “Make in India” initiative. Below is a detailed breakdown:

1. Eligibility Criteria

To avail benefits under Section 115BAB, a company must satisfy all of the following:

1. Incorporation & Commencement:
   • Incorporated on or after October 1, 2019.
   • Must commence manufacturing/production by March 31, 2024(extended from 2023).
2. No Reconstruction:
   • Not formed by splitting/reconstructing an existing business (except under Section 33B).
3. Asset Restrictions:
   • Plant & Machinery: Must be new(≤20% value of used machinery allowed if imported and unused in India).
   • Buildings: Cannot use previously operational hotels/convention centers (as per Section 80-ID).
4. Business Activity:
   • Must engage in manufacturing/production(excludes software development, mining, gas bottling, etc.).
5. No Exemptions:
   • Cannot claim deductions under:
     • Chapter VI-A(except Section 80JJAA for employment generation).
     • SEZ benefits (Section 10AA).
     • Additional depreciation (Section 32(1)(iia))or investment allowance (Section 32AD).

2. Tax Rate & Computation

Example:

• Profit = ₹2 crore
• Tax @15% = ₹30 lakh
• Surcharge (10%) = ₹3 lakh
• Cess (4%) = ₹1.32 lakh
• Total Tax = ₹34.32 lakh(vs. ~₹52 lakh under normal regime).

3. Key Benefits

✔ Lower Tax Burden: 17.16% vs. standard 25–30% rate.

✔ No MAT (Minimum Alternate Tax): Exempt from Section 115JB.

✔ Attracts FDI: Competitive rate compared to Southeast Asia.

✔ Simplified Compliance: No need to track complex exemptions.

4. Restrictions & Conditions

❌ Irrevocable Option: Once opted, cannot revert to normal regime.

❌ No Loss Carry-Forward: Unabsorbed depreciation/losses linked to disallowed deductions cannot be set off.

❌ Excluded Activities: Software development, mining, gas bottling, etc., are not considered manufacturing.

5. Compliance Requirements

• Form 10-ID: Must be filed before the ITR due date(typically September 30).
• Transfer Pricing: Arm’s length pricing applies for related-party transactions.
• Audit: Mandatory if turnover exceeds ₹1 crore (Section 44AB).

6. Comparison with Other Regimes

7. Recent Updates (2025)

• No Extension: The March 31, 2024deadline for commencement remains unchanged.
• Clause 200 (IT Bill 2025): Reinforces 115BAB provisions without major changes.