It has brought sections 115BA, 115BAA and 115 BAB in the Income Tax Act that are brought forth to attract corporate investment in manufacturing besides relieving the tax system of domestic companies. Thus for availing such rates of tax conditions of that provision have to be met by the country itself. Section 115 BA Available to domestic companies that carry out manufacture or production and avails a rate 25% introduced through Finance Act, 2016. Section 115 BAA Introduced by Taxation Laws Amendment) Ordinance, 2019 at 22% exempted and deducted all domestic companies to make the corporate tax regime globally competitive. Section 115 BAB provides for the manufacturing and production operations during, or after October 1, 2019, up to the end of 31st March 2024, shall be charged with the amount of 15% towards the development and growth of the industry in India.
Section 115BA: Income Tax on the Income of Certain Domestic Companies
Provisions of section 115BA of the income tax act is applicable upon satisfying certain conditions inter alia strengthen a few economic sectors and encourage an investment. Main features of section 115BA are discussed below:
Applicability: Section 115BA of the act will cover domestic companies engaged with this manufacturing business or production anything. However, it does not include those companies which carry on prohibited operations.
Eligibility: This concession is allowed only when some eligibility has been created by the company. It should not be a project undertaken of a new combination either by way of division or amalgamation of an existing working concern. The same should not be an outcome of transferring existing machinery and plant working.
Tax Rate: The Companies who would otherwise fall in the tax regime of Section 115BA have to pay 25% on total income.
Exemptions and Deductions : The exemptions as well as deductions that are available under the normal provisions of Income Tax Act, the companies cannot avail them under Section 115BA. These include deductions under Section 10AA and deductions of scientific research expenditure.
Conditions to Enjoy Facilities Available Under Section 115BA
Some of the key conditions which you need to follow in order to enjoy the various facilities providers under Section 115BA of the Income Tax Act are given below:
- Company incorporated and constituted on or after 01/03/2016.
- A company that is liable to go into manufacture or production of articles or things.
- Authorized by the company for reasons related to specific sections of tax laws.
- Provisions under Chapter VI-A with the heading "C.-Deductions in respect of certain incomes", except the provisions of Section 80JJAA.
- This Option has to be availed till the last date of filing of income tax return.
- A company cannot opt-out once the option is taken except when the company takes Section 115 BAA.
- The option must be in Form 10-IB notified by the CBDT. The form must be filed online through digital signature or electronic verification code.
Section 115 BAA: Tax on Income of Certain Domestic Companies
This Section 115 BAA grants tax exemption to the indigenous companies. This section can be made use of unless these companies under which this section is to be applied get covered by Section 115BA. Let's find out some major features of Section 115 BAA now:
Eligibility : The indigenous companies or professional category of land enjoy scope under Section 115 BAA. There is no special mention of what business is in play.
Tax Rate: Domestic firms take advantage of a lower tax rate 25% on the total income available under section 115 BAA
Exemptions and Deductions: Once relief is under such section, most exemptions and deductions, not available under section 115BA.
Terms and Conditions: Every such firm, who so applies for relief u/s 115 BAA of the act, will be liable to withdrawal of some unabsorbed losses along with undistributed depreciation. A firm may withdraw after relief claimed
Tax @ 22% Would be Payable Under Section 115 BAA
In all the conditions, which are as under tax would be payable as above under Section 115 BAA:
- No deduction is allowed under the provisions includes Section 10AA, Clause (iia) of sub-section (1) of section 32, Section 32AD, Section 33AB, Section 33ABA, Section 35, Section 35AD, Section 35CCC and Section 35CCD
- No deduction is also allowed under the provisions of Chapter VI-A with the heading: "C- Deductions in respect of certain incomes"
- The provisions of Section 80JJAA are not excluded.
- Not carried forward or brought forward earlier year of assessment, if such loss or depreciation is arising out of or wholly attributable to any of the deductions in clause (i);
- without carrying forward any loss or any allowance for depreciation deemed to be under section 72A if such loss or depreciation arises out of or wholly attributable to any of the deductions referred to in clause (i); and
- Any depreciation allowed under Section 32, except for clause (iia) of sub-section (1), is to be calculated as per the prescribed method.
- The losses and depreciation in clause (ii) and clause (iii) of sub-section (2) shall be fully allowed and no allowance for the said loss or depreciation shall be made thereafter for subsequent year, Provided such option is exercised under this Act before the due date as specified u/s. 139(1) for that previous year, the advantage of such provisions of this section may be availed.
- Can be allowed to be set off against any subsequent year/s of assessment An election, once made cannot be withdrawn for that particular earlier year or for any other earlier year subsequently MAT cannot be paid; MAT credit available cannot be used under this scheme
- This surcharge is payable by the company, if the company elects to this scheme at 10% without accounting for the income earned.
- The incidence of tax would be 25.17%
- This relief is available on the 10-IC form which is offered by the CBDT. The form is available in the online mode and accepted through digital signature or the electronic verification code
Section 115 BAB: Tax Relief for New Manufacturing Units
This provision of section 115 BAB Income Tax Act is one which favors investment plus scope of employment in the manufacturing industry. In this very section, handsome tax concessions are offered to the recently set up manufacturing houses. Now let's take further steps towards elaborate discussion in relation to this issue.
Applicability: Section 115 BAB is applicable to all new manufacturing companies which either commence their business on or after 1st of October 2019 and before 1st of April 2023.
Eligibility Conditions: A new company to be incorporated has some defined conditions that must qualify to have such Section 115 BAB. An eligible company is manufacturing or producing any article or thing and such company is not formed for splitting or reconstructing any previous existing business.
Tax Rate Under Section 115 BAB: this would pay the tax that, totally income, eligible companies accrues, reduced to 15%.
Similar to all those above, exemptions and relief are available only to the degree of normal provisions of Income-Tax act and in this case exemption and deduction would not apply because relief can be claimed there is no tax under Section 115BA.
Enterprise shall manufacture or we can say produce an article which shall commence on or before 31st of March 2023. The enterprise shall not be incorporated by splitting up or reconstructing any business already in existence.
Tax @ 15% for New Manufacturing Units
Would thus be liable on the following conditions:
- Date of registration is on or after the 1st day of October, 2019 and has commenced production or manufacture of any article or thing on or before the 31st of March, 2023.
- Business is not made up of any ordinary business broken or rebuilt. Does not have a plant or machinery that might be used for any other purpose. (Plant or machinery shall be new).
- Except for Plant and Machinery, up to 20% of the total can be second-hand.
- Imported Plant and Machinery will be considered as new.
- Buildings previously used as a hotel or convention center, for which a deduction under Section 80-ID has been claimed and allowed, are not eligible.
- The company only manufactures or produces items, conducts research related to them, or distributes the items it produces. It does not engage in any other type of business.
Comparison of Sections 115BA, 115BAA and 115 BAB
All the three sections are relief against tax but to different classes of taxpayers. Section 115 BA covers the tax regime of power sector companies at 25%. Section 115 BAA is taxed on every local business. Therefore, at 22% they are exempted if they waive some portion of the deductions. Section 115 BAB focuses on a new manufacturing company thus has a rate 15%. The two sections put into limelight what has been happening by the government to favor certain industries and new ventures.
Advantages Sections 115BA, 115BAA and 115 BAB
Sections 115BA, 115BAA and 115 BAB has numerous reliefs. Among many, the rate of taxation accorded to some classes of taxpayers makes them more profitable other than enticing more ventures. Deducing tax burden free up available resources for repatriation into research and development apart from developments. Provision attracts both domestic and foreign investments which go towards supplementing economic activities apart from enhancing employment opportunities.
Conclusion
Sections 115BA, 115 BAA, and 115 BAB are structured with a very business-friendly environment which the Government so likes India to become a country. Section 115 BA would cater to operational manufacturing entities. Sections 115 BAA and 115 BAB shall cater to all other Indian entities and new manufacturing entities respectively. This helps in making the economic sector, which is further supported by lesser tax rates and streamlined structures. Also, it attracts more foreign investment to put India under the heads of "Make in India" along with other schemes.
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