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Tax on income of new manufacturing domestic companies:-

Section 115BAB(1): the income-tax payable 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 sub section (2) conditions are satisfied.

Exceptions of the above :-

i) Any income neither derived from nor is incidental to manufacturing or production of an article or thing then such income shall be taxed at “the rate of twenty-two per cent” and no deduction or allowance in respect of any expenditure or allowance shall be allowed.

ii) that the amount, being profits in excess of the amount of the profits determined by the Assessing Officer, shall be deemed to be the income of the person shall be computed at “the rate of thirty per cent” 

iii) in respect of income being short term capital gains derived from transfer of a capital asset on which no depreciation is allowable under the Act shall be computed at “the rate of twenty-two per cent”

iv) If the person fails to satisfy the conditions contained in sub-section (2) in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and subsequent assessment years and other provisions of the Act shall apply to the person as if the option had not been exercised for the assessment year relevant to that previous year and subsequent assessment years: In case of non compliance department will act as the option had not been exercised  for the AY.

Section 115BAB(2): For the purposes of sub-section (1), the following conditions shall apply, listed below :-

a) 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, 34[2024] and,

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

ii) Does not use any machinery or plant previously used for any purpose. (NO P&M if used Outside India)

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

Optional Section 115BAB After First year of return by new manufacturing domestic companies

(iii)of this clause, the condition specified therein shall be deemed to have been complied with.

(iv) Does not use any building previously used as a hotel or a convention Centre, as the case maybe, in respect of which deduction under section 80-ID has been claimed and allowed.

b) The company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it.

For example below are not include in manufacturing :

(i) development of computer software in any form or in any media;

(ii) mining;

(iii) conversion of marble blocks or similar items into slabs;

(iv) bottling of gas into cylinder;

(v) printing of books or production of cinematograph film; or

(vi) any other business as may be notified by the Central Government in this behalf;

(c) the total income of the company has been computed :-

(i) Person opted not eligible for deduction 10AA, 32(1), 32AD, 33AB, 33ABA, Partial section 35, 35AD, 35CCC, 35CCD. (Except 80M & 80JJAA).

(ii) No Set off of loss or allowance

When option is exercised to OPT-115BAB Options :

Once the option is exercised by the person in the prescribed manner on or before the due date specified under sub-section (1) of section 139 for furnishing the first of the returns of income for any previous year relevant to the assessment year commencing on or after 1st day of April, 2020 and such option once exercised shall apply to subsequent assessment years:
Provided that once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.

Can a company OPT 115BAB After First year of return and what will be procedure :

  • As per Section 115BAB(2)(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 2024”:

In this particular section in first condition, it is mentioned that company should be registered on or after 01/10/2019. So Any Pvt Ltd is registered on for example: 31/07/2020 hence we fulfilled first condition.

Before second condition there is “AND” the above company has commenced manufacturing or production of an article or thing on or before the 31st day of March 2024. So in case of Any Pvt Ltd, the commencement of manufacturing or production should be commenced from June 2022 onwards. Hence BAPL is also fulfilling second part of conditions.

Hence for the previous year 2022-23 (AY 2023-24), we can opt the section 115BAB, we cannot opt in the last previous year 2021-22(AY 2022-23).

  • FORM No. 10-ID (Application for exercise of option under sub-section (7) of section 115BAB of the Income-tax Act, 1961) [See sub-rule (1) of rule 21AF]

We need to fill following details in FORM 10-ID for opting option u/s 115BAB. In which clearly mentioned that Date on which company setup & registered and Date of commencement of Manufacturing/production    hence we can say in case of Any Pvt Ltd this option is still open for us.

  • As Per Rule 21AF(1) of the Income Tax Rules : “The option to be exercised in accordance with the provisions of sub-section (7) of section115BAB by 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 be in Form No. 10-ID.”

As per Income Tax Rule there is not clearly mentioned that we need to opt in first year of filing of return while there is mentioned “for any previous year” hence in Any Pvt Ltd we can opt section 115BAB.

Hence as per my opinion, Any eligible company may opt section 115BAB option after the expiring of the time of first year return.

The Information provided above is not a substitute for legal and other professional advice where the facts and circumstances warrant. If any User in Customer’s organization requires legal advice or other professional assistance, each such user should always consult his or her own legal or other professional advisors and discuss the facts and circumstances that apply to the User.

Reach out to us for any tax consultancy and related compliances: Lokeshprajapat93@gmail.com

Author Bio

I am Corporate Employee having good exposure in MIS, Finance and Direct Tax. Also I am working as Freelancer Tax Consultant. If you need any Consultancy related to Taxation then Reach out me : Lokeshprajapat93@gmail.com Mobile : +91-7208043204 View Full Profile

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