Section 115BAB of the Income Tax Act: Tax Rate and Eligibility

Introduction

The Government introduced Section 115BAB of the Income Tax Act to provide a concessional corporate tax regime for eligible new domestic manufacturing companies. The provision was introduced to encourage investment, manufacturing activity and business growth in India by offering a lower corporate tax rate to companies satisfying the prescribed conditions.

This article provides information about Section 115BAB of the Income Tax Act, the eligibility criteria under Section 115BAB, the tax rate for domestic manufacturing companies, and the transfer pricing provisions under Section 115BAB.

Section 115BAB of the Income Tax Act

Section 115BAB of the Income Tax Act was introduced to give eligible domestic manufacturing companies the option to pay tax at the rate of 15%, excluding surcharge and cess.

Companies opting for the lower tax rate will not be eligible to claim certain specified deductions, exemptions, or incentives. Eligible companies can choose whether to pay tax under the concessional tax regime provided under Section 115BAB.

Under the Income-tax Act, 2025, Section 115BAB has been renumbered as Section 201. The concessional tax provisions for eligible domestic manufacturing companies continue under the new section.

The introduction of Section 115BAB supports the growth of economic activity and employment opportunities. It also encourages liquidity, investment, and production. As a result, the profits and disposable income of stakeholders may increase, leading to higher demand and consumption.

Tax Rates Applicable Under Section 115BAB of the Income Tax Act

The effective rates include a 10% surcharge and 4% health and education cess.

Eligibility Criteria for Section 115BAB of the Income Tax Act

Section 115BAB of the Income Tax Act is an optional tax regime available to eligible new domestic manufacturing companies from Assessment Year 2020-21, subject to fulfilment of the prescribed incorporation, commencement, business and income-computation conditions.

The company must be incorporated and registered on or after October 1, 2019, and manufacturing or production must commence on or before March 31, 2024. Such a company should satisfy the following conditions:

• Except where a business is re-established under Section 33B, the company should not be formed by splitting up or reconstructing an existing business.
• The company should generally not use previously used plant or machinery. However, machinery previously used outside India may be permitted if it was not used in India before its installation, is imported into India, and no depreciation was allowed or allowable in India before its installation. Previously used plant or machinery may also be permitted where its value does not exceed 20% of the total value of the plant and machinery used by the company.
• The company should not use a building that was previously used as a hotel or convention centre where a deduction under Section 80-ID had been claimed and allowed.
• The company should be engaged in the business of manufacturing or producing an article or thing. It may also conduct research relating to the article or thing manufactured by it. The company may also distribute the article or thing manufactured or produced by it.

The total income of the company should be calculated without claiming the following specified deductions and incentives:

• Deduction available to units in a Special Economic Zone under Section 10AA.
• Investment allowance under Section 32AD for eligible new plant and machinery installed in specified notified backward areas.
• Deduction under Section 33AB available to tea, coffee, and rubber manufacturers.
• Deduction under Section 33ABA for deposits made to the site restoration fund by companies engaged in the extraction or production of petroleum, natural gas, or both in India.
• Specified deductions for expenditure on scientific research under Section 35.
• Deduction for capital expenditure incurred by a specified business under Section 35AD.
• Deduction for expenditure incurred on an agricultural extension project under Section 35CCC or a skill development project under Section 35CCD.
• Deductions under Chapter VI-A relating to specified incomes are generally not available, except eligible deductions under Sections 80JJAA and 80M.
• Set-off of losses carried forward from previous years if such losses relate to the deductions mentioned above.
• Additional depreciation under Section 32(1)(iia) cannot be claimed. However, normal depreciation under Section 32 remains available at the prescribed rates. Where the depreciation rate for a block of assets exceeds 40%, it is restricted to 40%.

How to Opt for Section 115BAB of the Income Tax Act

An eligible domestic manufacturing company must exercise the option under Section 115BAB of the Income Tax Act by filing Form 10-ID electronically on or before the due date prescribed for filing its income tax return for the year in which the benefit is first claimed.

Once the option is exercised:

• It applies to subsequent assessment years.
• It cannot be withdrawn once exercised.
• Failure to satisfy the prescribed conditions will render the option invalid for that year and subsequent years.

For tax years governed by the Income-tax Act, 2025, the corresponding provisions of Section 201 and the prescribed form and procedure should be followed.

Section 115BAB Transfer Pricing Provision

Where the course of business between an eligible company and another person is arranged, because of a close connection or for any other reason, in a manner that produces more than the ordinary profits expected from such business, the Assessing Officer may examine the arrangement and compute the profits at the amount reasonably deemed to have been derived from the business.

Where the arrangement involves a specified domestic transaction under Section 92BA, the profits must be determined having regard to the arm’s length price under the applicable transfer-pricing provisions.

Any profit exceeding the amount determined by the Assessing Officer is deemed to be the company’s income and is taxable at a basic rate of 30%, along with the applicable surcharge and cess.

Company Income Tax Filing Support

Companies opting for the concessional tax regime under Section 115BAB of the Income Tax Act must calculate their tax liability correctly and file the applicable income tax return within the prescribed time.

Ebizfiling can assist with:

• Checking eligibility under Section 115BAB
• Calculating the applicable tax liability
• Reviewing deductions and exemptions
• Preparing and filing the company income tax return
• Ensuring compliance with applicable tax provisions

Get professional assistance through Ebizfiling’s Company IT Filing Online service.

Conclusion

Section 115BAB of the Income Tax Act provides eligible domestic manufacturing companies with the option to pay tax at a concessional basic rate of 15% on eligible manufacturing income, subject to the prescribed conditions. After adding the 10% surcharge and 4% health and education cess, the effective rate on such income is 17.16%.

However, non-manufacturing income, certain short-term capital gains, excess profits and income taxable at a special rate may be taxed differently. Under the Income-tax Act, 2025, the corresponding provisions are contained in Section 201. Eligible companies should examine their income, deductions, losses and compliance requirements before exercising the option.

Frequently Asked Questions