FAQs on Section 115BAB – concessional tax scheme

By / / Income Tax

1. How is Section 115BAB beneficial to companies?

  • Companies opting to pay income tax as per section 115BAB can take advantage of the concessional tax rates.

2. To which companies is section 115BAB applicable?

  • Newly incorporated domestic manufacturing companies which are set up and registered on or after 1st October 2019 and has commenced manufacturing on or before 31st March 2024.

3. What is the tax rate applicable for companies opting for section 115BAB?

  • The companies opting to pay tax under section 115BAB are liable to pay income tax at the rate of 15% on their total income in any previous year.
  • Surcharge shall be charged @ 10% irrespective of the amount of total income and Health & Education cess @4% shall also be charged.

4. How can companies opt to pay tax under section 115BAB?

  • It is essential to file Form 10-ID to opt for section 115BAB on or before the due date for filing ITR under section 139(1).
  • Companies who opt to pay tax under section 115BAB cannot withdraw it subsequently.

5. What are the conditions that a company should satisfy to pay tax under section 115BAB?

  • The business is not formed by splitting up, or the reconstruction, of a business already in existence. This condition shall not apply where the business is re-established revived, re-constructed due to reasons as referred to in and in compliance with section 33B.
  • Does not use any machinery or plant previously used for any purpose. i.e. second hand machinery (exceptions to this condition covered below)
  • The company shall not use any building previously used as a hotel or convention centre in respect of which deduction u/s 80ID has been claimed and allowed.

6. What are the exceptions regarding the usage of second hand plant and machinery in respect of a company opting to pay tax under S.115BAB?

The following plant and machinery shall not be regarded as previously used if the following conditions are satisfied,

  • Machinery or plant which was used outside India
  • Machinery or plant that has been imported into India from any country outside India.

7. Can a company opting to tax under section S.115BAB use second hand plant & machinery at any stage?

  • Companies opting to pay tax under section 115BAB can use plant & machinery provided the value of such machinery does not exceed 20% of the total value of plant or machinery used by the company.

8. What are the activities that are not considered as manufacturing for the purpose of opting to pay tax u/s. 115BAB?

The following activities are not considered as manufacturing,

  • 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 the cylinder
  • Printing of books or production of a cinematograph film
  • Any other business as may be notified by the Central Government

Note: The “business of manufacture or production of any article or thing” shall include the business of generation of electricity

9. What are the deductions that cannot considered while computing total income as per section 115BAB?

  • Section 10AA: Deduction in respect of export turnover of units established in special economic zones
  • Section 32(1)(iia): Additional depreciation
  • Section 32AD: Investment in new plant or machinery in notified backward areas in certain States.
  • Section 33AB: Deduction on account of deposit in Tea, Coffee & Rubber development account.
  • Section 33ABA: Deduction on account of deposit in Site Restoration Fund.
  • Section 35(2AB), 35(2AA), 35(1) (ii), 35(1) (iii): Deduction on account of expenditure on scientific research.
  • Section 35AD: Deduction in respect of capital expenditure on specified business
  • Section 35CCC: Deduction in respect of notified agricultural expansion project
  • Section 35CCD: Deduction in respect of notified skill development project
  • Chapter VI A deductions other than section 80JJA or section 80M

10. Can we set off loss against the total income computed as per section 115BAB?

  • No loss is allowed to be set off against total income computed as per section 115BAB

11. Can we set off unabsorbed deprecation against the total income computed as per section 115BAB?

  • No, unabsorbed depreciation cannot be set off against total income computed as per section 115BAB

12. What is the rate of tax on short-term capital gain in respect of companies opting to pay tax under section 115BAB?

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

13. What is the rate of tax on Income other than income from manufacturing in respect of companies opting to pay tax under section 115BAB?

  • Income tax on income other than income from manufacturing shall be levied at the rate of 22%

14. Is MAT provisions under section 115JB applicable to companies opting for section 115BAB?

  • The companies paying tax under section 115BAB are exempted from MAT provisions.

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