Section 115BAB

Section 115BAB – Income Tax Regulations

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Section 115BAB – Income Tax Regulations

The Ministry of Finance (MoF) introduced taxation laws, Section 115BAA and Section 115BAB for domestic and domestic manufacturing companies, registered on or after October 1st 2019 or commencing before 31 st March 2023. The sections were introduced to support the startups by reducing corporate tax for domestic and manufacturing companies. Section 115BAB was introduced under the Income-tax Act, 1961.

Section 115BAB

Section 115BAB was introduced by the MoF to provide an option for the domestic manufacturing companies to pay taxes at 15%. Companies choosing for concessional tax will no longer be eligible for deductions or incentives from the government. However, the MoF provides an option to choose to opt to file taxes with or without the concessional tax, for companies eligible to avail the benefits of Section 115BAB.

Introducing Section 115BAB will help to increase economic activity and employment opportunities. It will also provide support to increase liquidity, investment and production. Thus creating an increased profit and disposable income for the stakeholders leading to demand and consumption.

Eligibility

Companies should have been registered to form on or after 1st October 2019 or registered to initiate production by 31st March 2023. The company can opt for Section 115BAB and file within 30th September of every assessment year.

The company should be a domestic manufacturing company, and the total income should be computed without any deductions under the following sections:

  •  Section 10AA
  •  Section 32 of sub-section (1) of clause (iia)
  •  Section 32AD
  •  Section 33AB
  •  Section 33ABA
  •  Section 2AA of sub-section (1) od sub-clause (ii, iia or iii)
  •  Section 35 sub-section (2AB)
  •  Section 35
  •  Section 35 AD
  •  Section 35CCC
  •  Section 35CCD or
  •  Provisions under Chapter VI-A, heading C: Section 8 OJJAA, Section 80IA, Section 80IAB, Section 80IAC or Section 80 IB

Section 80-ID: The property of the company should have been established in office space and not on a hotel or convention centre. (clause (a) and (b) of sub-section (6))

Section 33B: The company should not have been formed on a business that exists already or by split up

Machinery: The machinery used by the company should not have been used previously by other companies. However, the company can use used machinery that was used outside India or machinery that was not used in India by other companies. (sub-clause (ii))

If the company opts to use its old machinery, the total value of the machinery should not exceed 20% of the total value of the plant and machinery

Loss Carried Forward: As per sub-clause (ii) of clause (c) of sub-section (2), the carryover loss projected by the company for the previous year shall not be taken into account for any subsequent year.

MAT: The provision for documenting MAT will be not applicable

Benefits

Any new manufacturing company initiated after October 1st 2019 can avail the benefits of Section 115BAB

Tax can be filed at 15%

MoF provides transfer pricing provisions, when, the company has earned more the usual profits, the assessing officer shall consider only the regular profit for documentation of profits.

Section 92BA shall be applicable, and the profits will be calculated depending on the price set for the trade.

The total tax liability for the domestic manufacturing companies shall be followed as:

S. No.TypePer cent
1Basic Tax Rate15%
2Surcharge10%
3Cess4%
4MATNA
5Total (15*1.1*1.04)17.16%

Click here to avail benefits of Section 115BAB


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