FAQs on Section 115BAB of Income Tax Act, 1961

Section 115BAB of Income Tax Act, 1961 deals with Tax on income of new manufacturing domestic companies and is inserted with effect from the 1st day of April, 2020. Article answers few question related to Section 115BAB of Income Tax Act, 1961.

Can the the company be registered with a similar name of the old company?

In this regard, kindly note that primary condition of section 115BAB is establishment of new company & uses of new plant and machinery. Further, in order to attract the fresh investment in manufacturing & boost to make in India initiative of the GOI…………. Since there is no restriction on the use of similar name as of the old company for the new company, in our view new company can be registered with the similar name of the new company.

Can old company transfer the Trademark, Patent to New Company or we need register new?

In this regard kindly note that condition of the section 115 BAB is that to start new domestic manufacturing  which manufactured different  product or article. If we used the same trademark or patent by that was earlier used by the assessee itself then this would be assume that no new product or article produced by the assessee,  hence to avoid the litigation & to fulfill the condition of section, our view is that company should registered new trademark or patent.

Can the director of the new company and the old company be the same?

It is recommended that the members of the board of both companies(old company as well as newly established company) should be different persons and that this may be done before taking the key decisions about finances, setting up of business, hiring of personnel etc.

Any exemption in TDS (Receivable).

A domestic company will be entitled to the benefit of low corporate tax rate if it satisfies the following conditions . However there is no relief provided in the section to the newly established company regarding the deduction of TDS on the amount credited/paid to the company. Therefore, normal TDS rates are applicable to the company established u/s 115BAB.

Extract of section 115BAB of Income Tax Act, 1961

115BAB. (1) Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, other than those mentioned under section 115BA and section 115BAA, the income-tax payable in respect of the total income of a person, being a domestic company, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2020, shall, at the option of such person, be computed at the rate of fifteen per cent, if the conditions contained in sub-section (2) are satisfied:

(2) For the purposes of sub-section (1), the following conditions shall apply, namely:—

(a) the company has been set-up and registered on or after the 1st day of October, 2019, and has commenced manufacturing or production of an article or thing on or before the 31st day of March, 2023 and,—

(i) the business is not formed by splitting up, or the reconstruction, of a business already in existence:

Provided that this condition shall not apply in respect of a company, business of which is formed as a result of the re-establishment, reconstruction or revival by the person of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in the said section;

(ii) does not use any machinery or plant previously used for any purpose.

Explanation 1.—For the purposes of sub-clause (ii), any machinery or plant which was used outside India by any other person shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely:—

(A) such machinery or plant was not, at any time previous to the date of the installation used in India;

(B) such machinery or plant is imported into India from any country outside India; and

(C) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of machinery or plant by the person. 

Explanation 2.—Where in the case of a person, any machinery or plant or any part thereof previously used for any purpose is put to use by the company and the total value of such machinery or plant or part thereof does not exceed twenty per cent of the total value of the machinery or plant used by the company, then, for the purposes of sub-clause (ii) of this clause, the condition specified therein shall be deemed to have been complied with; 

(iii) does not use any building previously used as a hotel or a convention centre, as the case may be, in respect of which deduction under section 80-ID has been claimed and allowed.

Explanation.—For the purposes of this sub-clause, the expressions “hotel” and “convention centre” shall have the meanings respectively assigned to them in clause (a) and clause (b) of sub-section (6) of section 80-ID;