Which company will get a lower tax benefit, what is the Tax Effect, the meaning of the new manufacturing company, what will be the tax liability
Purpose of Introduction Section 115BAB:-
To boost manufacturing for new ventures without incentives and concessions at 15% (plus a surcharge of 10% plus Health surcharge at 4% of Tax) taxation under the new section 115 BAB inserted into the Income Tax Act, 1961
Manufacturing meaning:-
‘Manufacture’ is defined as the “transformation of an object into a new article or their..”
Applicability:-
A domestic company registered on or after 1 October 2019 and has commenced manufacturing on or before 31 March 2023 will be eligible for lower tax benefits. A further domestic company that is fulfilling specified conditions can claim benefit of section 115BAB.
What Specified Conditions to be fulfilled for lower Tax benefit:-
A domestic company will be entitled to the benefit of low corporate tax rate if it satisfies the following conditions:
- Such a company should:
- Not be formed by the splitting up and reconstruction of a business already in existence except in case of a business re-established under section 33B
- It does not use any plant or machinery previously used for any purpose. However, the company can use plants and machinery used outside India and used in India for the first time. Also, the company can use old plant and machinery, the value of which does not exceed 20% of the total value of the plant and machinery used by the company.
- Does not use a building previously or used as a hotel or
- The company should be engaged in the business of manufacture or production of any article or thing, and research in relation to such article or thing. The company can also be engaged in the distribution of such article or thing manufactured or produced by it.
NOTE:- The total income of the company should be calculated without claiming tax exemptions and incentives:
Tax liability under section 115BAB
The effective tax rate will apply to domestic companies availing the benefit of section 115BAA is 17.16%. The break up such tax rate is as follows:
| Base tax rate | Surcharge applicable | Cess | Effective tax rate |
| 15% | 10% | 4% | 15*1.1*1.04 = 17.16% |
Time to avail this lower Exemption under section 115BAB:-
A new manufacturing company has to exercise the option on or before the due date of filing income tax returns i.e usually 30th September of the assessment year. Once the company opts for section 115BAB in a particular financial year, it cannot be withdrawn subsequently.
Example:-
let’s say, Mahindra limited engaged in manufacturing of Article incorporated on 25 Oct 2019, then if this company opt for the benefits of section 115BAB then it will be allowed to claim a lower rate of 15%(plus 10% and cess 3%), instead of higher rate 30 %
Transfer pricing provisions Applicability:
On these companies, Transfer provisions will be applicable between an Associate company having International and Specified Domestic Transactions.
Relaxation to newly Manufactured Companies:-
At a great extent, these Domestic companies as specified are specially benefited by the taxation lower Rate at 15 % + 10%+4%
CAN WE USE LEASED HOLD LAND FOR THIS PURPOSE?