The Taxation Laws (Amendment) Ordinance, passed on September 20, 2019, introduced Section 115BAB of the Income Tax Act. As per Section 115BAB, certain manufacturing firms based in India are eligible to get a reduced tax rate. The primary aim behind the insertion of this Section was to promote the growth of new manufacturing start-ups.
Here’s everything about Section 115BAB, its provisions, reduced tax rates and eligibility. Read on!
According to Section 115BAB, specific new domestic manufacturing firms can get the option to pay income tax at a reduced rate of 15%. This would include applicable cess and surcharges, starting from FY 2019-2020.
That said, certain domestic manufacturing firms opting for a reduced income tax rate will have to follow the same for the subsequent financial year, as this option cannot be withdrawn.
In addition, Section 115BAB of the Income Tax Act, 1961 also states that a flat surcharge of 10% and a 4% cess will apply to firms opting for this relaxation.
Certain manufacturing companies based in India will be eligible to avail of the benefits under Section 115BAB, provided they fulfil the following criteria:
Also read: What Is Corporate Tax: Rates, Fees, Tax Return Forms & Due Dates
The following pointers mention the applicability of Section 115bab of the Income Tax Act with regard to transfer pricing provisions:
The following tables detail the difference in tax rates for manufacturing companies that opt for a lower tax rate and those who don’t:
|Components||Not Opting for Section 115BAB||Opting for Section 115BAB|
|Overall tax rate||26%||17.16%|
|Components||Not Opting for Section 115BAB||Opting for Section 115BAB|
|Overall tax rate||27.82%||17.16%|
|Components||Not opting for Section 115BAB||Opting for Section 115BAB|
|Overall tax rate||29.12%||17.16%|
Besides, domestic manufacturing companies who do not opt for a lower tax rate under Section 115BAB of the Income Tax Act also have to pay MAT at 15%.
Also read: What is Global Minimum Corporate Tax Rate: Aims & Countries Involved
The introduction of Section 115BAB of the Income Tax Act is a remarkable move by the Income Tax Department, which provides a boost to the country’s manufacturing start-ups. Every firm must consider the current turnover, availability of MAT, cash flow and various other factors before opting for a lower tax rate.
Ans: Domestic manufacturing firms need to avail of tax benefits under Section 115BAB of the Income Tax Act on or before the date of income tax return filing. Thus, firms must stay informed about the last date of ITR filing during a particular financial year.
Ans: New domestic manufacturing companies need to fill out Form 10-ID to avail of concession on the overall tax rate. They must fill out this form on or before the due date, as specified under Section 139 sub-section (1).
Ans: Companies opting for a reduced tax rate under Section Section 115BAB of the Income Tax Act will have to pay 22% tax on all earnings that do not come from manufacturing things or articles. In addition, no allowance or deduction is available on such income.
Ans: As per the provisions mentioned under Section 115BAB, a convention centre is a building that includes convention halls. These halls are utilised for seminars or conferences and must be of substantial size to accommodate the required amenities.
Ans: As per the Income Tax Act, manufacturing refers to a change in a non-living physical thing or article that results in its transformation. Such a process brings into existence a newly formed object with a distinct integral structure or chemical composition.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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