An Overview on Section 115BAB

Section 115BAB

• Applicability - Manufacturing Domestic Company only
• Income Tax Rate: 15% + 10% + 4% = 17.16 %
• (MAT under section 115JB not applicable)

Conditions u/s 115BAB(2)

• Company is registered after 01/10/2019 and manufacturing commences before 31/03/2023.
• Does not USE previously used P&M (should not have been used for any purpose in India). However, up to 20 % of total P&M can be previously used P/M.
• Company is not engaged in any business other than business of manufacture
• 80JJAA - New employee deduction is allowed.
• Only normal depreciation u/s 32 is allowed. Additional depreciation (20%) is not allowed on new P/M.
• Amalgamation of companies and continuation of applicability of this section is allowed if all above provision u/s 115BAB(2) are complied. No set-off of b/f losses allowed in such case.
• First Return of the entity has to exercise this option before filing return. (Option must be exercised before due date).
• Once option is exercised, then it cannot be withdrawn.
• However, If condition of sec 115BAB(2) are not satisfied, in any previous year then this option shall became invalid and other provision of the Act will apply accordingly for all subsequent AYs thereafter.
• Part of total income which is not derived/incidental to manufacturing shall be taxed @22% and ANY expenditure shall NOT be allowed as deduction for such income.
• Any transaction between this co. and an entity with which it has a close connection (as may be reasonable determined by the assessing officer) shall be considered to be a specified domestic transaction. Therefore, the profits for the purpose of taxation under Section 115BAB, in such cases, shall be computed on an arm's length basis.
• 115BAB(6) - If it appears to A.O that the assessee has close connection with 3^rd person and such arrangement is made such that assessee has higher than normal profit, then such amount will be taxed @ 30%.
• STCG on transfer of P/M is taxed @22%.

Query

Can such entity be a job-work manufacturer?

Section 115BAB(6) mentioned above needs to be looked into. If the principal is using old machines / availing additional depreciation on new machines etc. then AO may take a view that conditions of 115BAB(2) are not complied. This can be decided on facts and situation.

Also, whether Jobwork can be counted as "Manufacturing" - A legal view may be taken. Generally, the provisions of this sections does not restrict JW specifically.

Can Plant and Machinery be taken on Rent / Lease?

Section 115BAB(6) mentioned above needs to be looked into. If the principal is using old machines / availing additional depreciation on new machines etc. then AO may take a view that conditions of 115BAB(2) are not complied. This can be decided on facts and situation.

Can land be taken on rent / Lease?

From study of the section, it seems land and/ or building can be taken on rent, if only normal depreciation u/s 32 was availed in the past.

A fact driven analysis of the business is suggested, before opting for a lower rate under section 115BAB.