The Government of India has implemented a new tax scheme for manufacturing enterprises to boost their growth and development. The 2019 taxation laws Ordinance passed on September 20 and year 2019 has incorporated Section 115 BAB, which offers a lower tax rate to manufacturing companies. This has been done to promote new manufacturing start-ups and enhance job prospects.

Even so, only the domestic companies satisfying the conditions under this section can claim the benefit. By domestic – it means a company formed and registered in India.

Section 115BAB of Income Tax Act

The Ministry of Finance (MoF) introduced Section 115BAB to provide domestic manufacturing companies with the chance to pay taxes at a lower rate of 15%. Though, companies that opt for concessional tax will not be allowed incentives or breaks given by the Government.

For enterprises that qualify for the benefits of Section 115BAB of the Income Tax Act, the MoF provides the option of filing taxes with or without concessional tax.

The scheme was put forward to encourage industrial investment and reinforce the Government's “Make in India” strategy”. In addition, it will also support the growth of production, investment, and liquidity. With this, the stakeholders will earn more profit and optional income, which will boost demand and consumption.

Who Can Avail of the Benefits?

A domestic company is entitled to the benefit of Section115BAB of Income Tax Act if it satisfies the given conditions:

1. The company must have been established and enlisted on or after October 1 2019, and started manufacturing on or before March 31 2024.
2. The company must be engaged in the business of production or manufacture of anything or article and research related to such thing or article. The company will also be eligible if it’s engaged in the distribution of such things or articles manufactured or produced by them.
3. Note that the business of production or manufacture of any article or thing should not include the business of
4. Development of Computer Software
5. Printing of books
6. Mining
7. Production of cinematograph films
8. Bottling of gas into cylinders
9. Any other business can be notified by the Central Government
10. The total income of the domestic company has to be calculated without claiming any tax deductions or exemptions.

Tax Liability

The new effective rate of tax for domestic companies who want to avail the benefit of Section 115BAB of Income Tax Act is 17.16%. Given below, you can find the breakup of this tax rate:

Such domestic companies will further not be asked to pay alternative minimum tax (MAT) under Section 115JB of the Income Tax Act.

Wrapping it Up

In conclusion, the introduction of Section 115BAB under the Income Tax Act by the Government of India aims to support and promote the growth of domestic manufacturing enterprises. This tax scheme offers a lower tax rate of 15% to eligible manufacturing companies, incentivising new start-ups and job creation. However, companies opting for the concessional tax rate will not receive additional government incentives or breaks. The scheme aligns with the government's "Make in India" strategy, fostering industrial investment, production, and liquidity, ultimately benefiting stakeholders and boosting demand and consumption in the economy.

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Frequently Asked Questions

1. What is Section 115BAB for manufacturing companies?

The Ministry of Finance introduced Section 115BAB to provide domestic manufacturing enterprises with the opportunity to pay taxes at a rate of 15%. It is introduced in order to boost new manufacturing start-ups.

2. What is the 115BAB surcharge rate?

The domestic companies availing the benefit of 115BAB will have a surcharge applicable of 10% irrespective of the total income amount.