Condition for lower income tax rate @15% for a new manufacturing company

Oct 05 ,2021 / Complinova Team /
  1. Company has been set-up and registered on or after the 1 October, 2019, and has commenced manufacturing or production of an article or thing on or before the 31 March, 2023
  2. The company should be engaged in the business of manufacture or production of any article or thing, including
    • research in relation to such article or thing manufactured or produced by it
    • distribution of such article or thing manufactured or produced by it

      • The Company need to satisfy the condition of manufacturing. As per Income Tax Act, “manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing:
      (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or
      (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure;

      The Supreme Court has provided further guidance on this matter. The term “manufacture” implies a change, but, every change is not a manufacture, despite the fact that every change in an article is the result of a treatment of labour and manipulation. If an operation/process renders a commodity or article fit for use for which it is otherwise not fit, the operation/process falls within the meaning of the word “manufacture”.

  3. The business is not formed by splitting up, or the reconstruction, of a business already in existence
  4. It does not use any machinery or plant previously used for any purpose
    • old machinery or plant up to 20% of total amount of machinery or plant used by the company or
    • import of old machinery or plant from outside India allowed subject to certain other conditions
  5. It does not use any building previously used as a hotel or a convention centre on which income tax exemption was given earlier u/s 80-ID
  6. Following business activities not allowed
    • development of computer software in any form or in any media
    • mining
    • conversion of marble blocks or similar items into slab
    • bottling of gas into cylinder
    • printing of books or production of cinematograph film
    • any other business as may be notified by the Central Government in this behalf (as of now, no notification issued under this clause)
  7. Below mentioned exemptions and incentives are not available:
    • Deduction under section 10AA for units in Special Economic Zone
    • Deduction for additional depreciation @20% under section 32(1)(iia) towards new plant and machinery
    • Investment allowance under section 32AD towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal
    • Deduction under section 33AB for tea, coffee and rubber manufacturing companies
    • Deduction towards deposits made towards site restoration fund under section 33ABA by companies engaged in extraction or production of petroleum or natural gas or both in India
    • Deduction for expenditure made for scientific research under section 35
    • Deduction for the capital expenditure incurred by any specified business under section 35AD
    • Deduction for the expenditure incurred on an agriculture extension project under section 35CCC or on skill development project under section 35CCD
    • Deduction under Chapter VI-A in respect to certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB and so on, except deduction under section 80JJAA (deduction in respect of employment of new employees) and section 80M (deduction in respect of certain inter-corporate dividends)
    • Set-off of any loss carried forward from earlier years if such losses were incurred in respect of the aforementioned deductions
  8. The company has to exercise the option on or before the due date of filing income tax returns of the FIRST YEAR itself which is usually 31st October, unless extended.

    The option shall be exercised in Form No. 10-ID along with the FIRST income tax return and this shall be furnished electronically either under digital signature or electronic verification code. (Rule 21AF)

    Once the company opts for section 115BAB in a particular financial year, it cannot be withdrawn subsequently.

  9. The new effective tax rate, which will apply to domestic companies availing the benefit of 115BAB is 17.16%. The break-up of such tax rate is given below:

    Base Tax rate Surcharge applicable Cess Effective Tax rate
    15% 10% 4% 15*1.1*1.04 = 17.16%
    Such companies will not be required to pay MAT (minimum alternative tax) under section 115JB of the act.

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