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SECTION 115BAB OF INCOME TAX ACT 1961

SECTION 115BAB OF INCOME TAX ACT 1961  [NEWLY SET-UP MANUFACTURING COMPANIES]

01] INTRODUCTION:

The government of India has introduced a favorable tax regime for new manufacturing domestic companies. The Taxation Laws (Amendment) Ordinance, 2019 passed in September 2019 has inserted Section 115BAB offering a low tax rate of 15% (plus surcharge and cess) to new manufacturing companies has set-up and registered on or after 1st day of October 2019 and has commenced manufacturing or production of an article or thing on or before the 31st day of March, 2023.

02] TAXABILITY ON NEW MANUFACTURING DOMESTIC COMPANIES

  1. Income Tax payable by domestic company, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2020, shall, at the option of such person, be computed at the rate of 15%.
  2. 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 then such income shall be taxed at the rate of 22% and no deduction or allowance in respect of any expenditure or allowance shall be allowed in computing such income.
  3. 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 at the rate of 22 %.

03] ELIGIBILTY FOR THIS SECTION

  1. The company has been set-up and registered on or after the 1st day of October, 2019, and has commenced manufacturing or production of an article or thing on or before the 31st day of March, 2023.
  2. The business is not formed by splitting up, or the reconstruction, of a business already in existence.
  3. Does not use any machinery or plant previously used for any purpose.
  4. Does not use any building previously used as a hotel or a convention Centre, in respect of which deduction under section 80-ID has been claimed and allowed.
  5. The company not engaged in the following businesses:
  • development of computer software in any form or in any media;
  • mining;
  • conversion of marble blocks or similar items into slabs;
  • bottling of gas into cylinder;
  • printing of books or production of cinematograph film; or
  • any other business as may be notified by the Central Government in this behalf.

04] CALCULATION OF TOTAL INCOME:

The total income of the company should be calculated without claiming tax exemptions and incentives.

  • Deduction under section 10AA for units in Special Economic Zone
  • Deduction for additional depreciation under section 32 and investment allowance under section 32AD towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal
  • Deduction under section 33AB for tea, coffee and rubber manufacturing companies
  • Deduction towards deposits made towards site restoration fund under section 33ABA by companies engaged in extraction or production of petroleum or natural gas or both in India
  • Deduction for the capital expenditure incurred by any specified business under section 35AD
  • Deduction for the expenditure incurred on an agriculture extension project under section 35CCC or on skill development project under section 35CCD
  • Deduction under Chapter VI-A in respect to certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB and so on, except deduction under section 80JJAA
  • Set-off of any loss carried forward from earlier years if such losses were incurred in respect of the aforementioned deductions
  • Deduction for depreciation under section 32, except the additional depreciation as mentioned above.

05] TAX LIABILITY UNDER 115BAB:

15% Plus Surcharge and Cess.

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