Now concessional rate of taxation option u/s 115BAB also available for generation of electricity as manufacturing

The Taxation Law Amendment Act, 2019 (TLAA), inter-alia, inserted section 115BAB in the Act. The newly inserted section provides that new manufacturing domestic companies set up on or after 1st October, 2019, which commence manufacturing or production by 31st March, 2023 and do not avail of any specified incentives or deductions, may opt to pay tax at a concessional rate of 15 per cent. Further, Explanation to clause (b) of sub-section (2) thereof provides that for the purposes of the said section, businesses engaged in development of computer software, mining, conversion of marble blocks or similar items into slabs, bottling of gas into cylinder, printing of books or production of cinematograph film or any other business as may be notified by the Central Government will not be considered as manufacturing or production.

Representations have been received from various stakeholders requesting to provide that the benefit of the concessional rate under section 115BAB of the Act may also be extended to business of generation of electricity, which otherwise may not amount to manufacturing or production of an article or thing. Accordingly, it is proposed to explain that, for the purposes of this section, manufacturing or production of an article or thing shall include generation of electricity.

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.

[Clause 52]

Extract of Relevant Clauses of Finance Bill, 2020

Clause 52

“Clause 52 of the Bill seeks to amend section 115BAB of the Income-tax Act relating to tax on income of new manufacturing domestic companies.

It is proposed to amend said sub-clause (i) of sub-section (2) of the aforesaid section so as to modify this condition to provide that the total income by the company shall be computed without deduction under any provisions of Chapter VI-A other than the provisions of section 80JJAA or section 80M instead of computation without deduction under any provisions of Chapter VI-A under the heading “C.-Deduction in respect of certain incomes” other than the provisions of section 80JJAA.

Sub-section (1) of said section provides that the income-tax payable by a domestic company shall be at the rate of fifteen per cent. if the conditions in sub-section (2) of the said section are satisfied.

Sub-section (2) of said section specifies the conditions which a domestic company needs to satisfy to be eligible to be taxed at the rate of fifteen per cent.

It is proposed to insert an Explanation to the said sub-section (2) so as to provide that “manufacturing or production of an article or thing” for the purposes of clause (b) of the said sub-section shall include the business of generation of electricity.

These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-2021 and subsequent assessment years.”

Extract of Relevant Amendment Proposed by Finance Bill, 2020

52. Amendment of section 115BAB.

In section 115BAB of the Income-tax Act, in sub-section (2),–

(i) in clause (c), in sub-clause (i), for the words, figures and letters ‘Chapter VI-A under the heading “C.—Deductions in respect of certain incomes” other than the provisions of section 80JJAA’, the words, figures and letters “Chapter VI-A other than the provisions of section 80JJAA or section 80M” shall be substituted;

(ii) after clause (c), the following Explanation shall be inserted, namely:–

‘Explanation.––For the purposes of clause (b), the “business of manufacture or production of any article or thing” shall include the business of generation of electricity.’.

Source- Finance Bill 2020 / Union Budget 2020-21

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