Income Tax Rate reduction of 15% to new domestic companies registered on or after 1st October 2019

A new section 115BAB has been inserted, with an possibility of a reduced Income tax rate of 15% to newly incorporated domestic organizations which is registered or setup on or after October 1, 2019 and must be completely involved in the commerce of production, research over there or manufacturing of any product, or distribution of such product or thing produced by them. By considering the applicable surcharge of 10% and health and education cess of 4%, the effective tax rate shall be 17.16%.

This section is invented for attracting new investments in manufacturing and thereby provide boost to ‘Make-in-India’ concept of the government. Once the company choose the option of section 115BAB (reduce tax rates) shall be applicable constantly in company. This option shall be exercised shall be required to be exercised before the due date of furnishing the first ITR under sec 139(1) of the Act.

The option is available in the following conditions:

1. Company registered and to be setup on or after 1 October 2019
2. Commence the company production on or before 31 March 2023
3. Company should not be made up by the split-up or reconstruction of an existing business
4. Plant and machinery should not have been previously used in by any other person in India i.e. total investment < 20%
5. Plant and machinery purchased should be new and not imported into India.
6. The Company should not be connected in any business other than business of production or manufacturing of any product or thing and research in relation to, or distribution of such product or thing manufactured.
7. No deduction shall be available to the company under the following cases:

Sec10AA – Profits earned by unit in special economic zone (SEZ)

Sec 32(1) (iia) – Additional depreciation deduction @ 20%

Sec 32AC and 32AD – Investment allowance given to backward states for investment in new plant and machinery

Sec 33AB – Development allowance for Tea, coffee and rubber

Sec 33ABA – Site restoration fund

Sec 35(1) (ii), (iia), (iii) & Sec 35(2AA), (2AB) – Scientific research expenditure

Sec 35AD – Enhanced deduction on capital expenditure for specified business

Sec 35CCC – Agriculture extension project expenditure

Sec 35CCD – Expenditure incurred on skill development project

Part C of Chapter VIA deduction other than Sec 80JJAA

8. Set off any loss carried forward from previous years shall be not allowed if such loss is attributable to any of the above deduction.
9. Depreciation deduction shall be computed in the manner as will be prescribed. Till such time, the depreciation rate prescribed in Appendix-1 shall continue to be applicable.
10. MAT under section 115JB, on book profits shall not be applicable.
11. MAT credit available to the company under Sec 115JAA shall continue to be applicable for utilization and set-off.
12. Company shall be exercised this option before the due date of furnishing the first ITR(Income Tax Return) under section 139(1) of the Act.
13. If any company has exercised the option for any particular year then there is no right to further withdrawn the same for the same year or any other assessment year.
14. Not eligible to take concessional rate of tax regime.
15. No condition or limitation for turnover, type of business, nature of activity or date of incorporation.
16. Only domestic companies has right to choose this section, i.e. all companies formed and registered in India. Foreign companies’ branches or permanent establishments are not eligible.
17. Transactions between the company and associated enterprises shall be subjected to DTPP (Domestic Transfer Pricing Provisions).

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