India has taken bold steps to boost the manufacturing sector, & one such game-changer is Section 115BAB of the Income Tax Act. This section offers a tax rate of just 15% to new manufacturing companies, provided they meet specific criteria. Introduced as part of a corporate tax reform in 2019, Section 115BAB aims to position India as a global manufacturing hub by offering attractive tax incentives.
What is Section 115BAB?
Section 115BAB of the Income Tax Act, 1961, is a special provision that allows domestic manufacturing businesses to pay taxes at a 15% rate, plus applicable surcharges & cess. This concessional tax rate is a significant drop from the standard corporate tax rates, making it incredibly appealing for startups & businesses setting up new units in India.
Who is Eligible?
To avail the benefit under Section 115BAB:
- The company must be a domestic company registered on or after October 1, 2019.
- It must be engaged in manufacturing or production of goods (excluding certain restricted activities like mining, bottling of gas, etc.).
- It should not be formed by splitting up or reconstructing an existing business.
- The company must commence production on or before March 31, 2024. "
Conditions to Qualify for the 15% Tax Rate
While the 15% tax rate sounds tempting, there are several important conditions a company must fulfil:
- The company should not avail of any other tax incentives, including deductions under sections like 10AA, 35AD, etc.
- No set-off of carried forward losses or unabsorbed depreciation related to such deductions is allowed.
- MAT (Minimum Alternate Tax) provisions under Section 115JB do not apply to companies opting for this section.
- The company must opt in for this section by filing Form 10-ID before the due date of filing the income tax return. "
Why Section 115BAB Matters
The section is part of a larger strategy to encourage Make in India, job creation, & ease of doing business. Offering a low tax rate of 15% to new manufacturing companies makes India an attractive destination for setting up plants & factories.
The effective tax rate, including surcharges and cess, comes to around 17.16%, which is among the lowest in Southeast Asia. This makes a strong case for global manufacturers to look toward India.
Example to Understand Section 115BAB
Let’s say ABC Pvt Ltd is incorporated on 15th November 2023. It sets up a new manufacturing plant & begins operations on 1st February 2024. It does not claim any other deductions & files Form 10-ID on time. It earns a profit of ₹2 crores in FY 2024–25.
- Tax at 15%: ₹30 lakhs
- Surcharge @10%: ₹3 lakhs
- Health & Education Cess @4%: ₹1.32 lakhs
Total Tax Liability = ₹34.32 lakhs
Had ABC Pvt Ltd opted for the regular tax regime, the tax liability could have been more than ₹52 lakhs. That’s a massive saving!
Key Benefits of Section 115BAB
- ✅ Offers a tax rate of 15% to new manufacturing companies
- ✅ Simplifies compliance by eliminating MAT
- ✅ Attracts foreign and domestic investment
- ✅ Boosts job creation and industrial growth
- ✅ Applies only to companies setting up new manufacturing units
Limitations to Keep in Mind
- ❌ Not available for service sector companies.
- ❌ Cannot carry forward losses from earlier years if opting in.
- ❌ No deductions or incentives can be claimed.
This ensures that only companies genuinely setting up new manufacturing operations benefit from this provision.
At Callmyca, we help businesses like yours register under Section 115BAB, assess eligibility, & ensure all conditions are met for maximum tax savings. Want to unlock the 15% corporate tax rate? Talk to our tax experts today at Callmyca.com – because good advice is good business!
