Section 115BAB: Low Corporate Tax for New Manufacturing Companies

To encourage domestic manufacturing and attract global investment, the Government of India introduced Section 115BAB, offering one of the lowest corporate tax rates globally. This section provides new manufacturing companies with a concessional tax rate of 15%, making India a competitive hub for industrial growth.

Let’s understand what is Section 115BAB, its eligibility, benefits, compliance process, and key tax provisions.

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Corporate Income Tax

What is Section 115BAB?

Section 115BAB was introduced under the Taxation Laws (Amendment) Act, 2019 , as part of India’s tax reform initiative. It aims to give newly set up manufacturing companies a significant tax advantage to promote industrial expansion and job creation.

Overview of Section 115BAB

Section 115BAB provides a low corporate tax rate of 15% (plus a 10% surcharge and 4% cess) for newly incorporated domestic manufacturing companies that begin production before a specified date. The section falls under Chapter XII of the Income Tax Act and operates as a special taxation regime separate from standard corporate tax provisions.

Purpose of the Section

The government’s intent behind Section 115BAB is to:

Promote the “Make in India” initiative.
Encourage foreign investors to establish manufacturing units in India.

Boost domestic production and exports.
By lowering the corporate tax rate , India

Eligibility Criteria for Section 115BAB

Before claiming the benefits under Section 115BAB, companies must ensure they meet specific conditions related to incorporation, activity type, and commencement of operations.

Companies Covered Under 115BAB

Domestic manufacturing companies incorporated on or after October 1, 2019.
Companies that commence production by March 31, 2024 (as per the latest extension).
Entities engaged exclusively in the manufacture or production of articles or goods.

Who Can Opt for Lower Corporate Tax

Any eligible domestic company can opt for Section 115BAB by filing the required form before the due date of income tax return filing. The benefit is optional but once chosen, it is irrevocable for that company.

Exclusions and Non-Eligible Businesses

The following companies cannot avail the benefits of Section 115BAB:

Companies engaged in service activities such as software development, consultancy, or trading.
Businesses manufacturing tobacco, pan masala, or other prohibited items.
Companies using old or second-hand plant and machinery beyond the 20% threshold.

Companies formed through reconstruction or splitting of an existing business.

Key Benefits of Section 115BAB

Section 115BAB offers multiple advantages to new manufacturing companies beyond just the reduced tax rate.

Reduced Corporate Tax Rate

The headline benefit is the 15% basic corporate tax rate, which is among the lowest globally. After adding surcharge (10%) and cess (4%), the effective tax rate comes to 17.16%. This creates a level playing field with manufacturing hubs like Vietnam and Indonesia.

Simplified Compliance for New Manufacturers

Companies opting for Section 115BAB enjoy simplified tax compliance since they are not required to claim deductions or exemptions under other sections (like 80-IA, 80-IB, or 10AA). This makes tax filing straightforward, transparent, and free from complex audits of deduction claims.

Transfer Pricing Advantages

If a company under Section 115BAB has related party transactions, only limited transfer pricing provisions apply. This ensures that inter-company transactions remain fair without overburdening the taxpayer with extensive documentation requirements.

How to Avail Section 115BAB

Opting for Section 115BAB involves a one-time declaration and continuous compliance with eligibility norms.

Step 1: Check Eligibility

Confirm that the company is:

Incorporated on or after October 1, 2019.
Engaged solely in manufacturing or production.
Commenced operations by March 31, 2024.

Step 2: File Form 10-ID

Eligible companies must submit Form 10-ID electronically under digital signature before filing their first income tax return. This form acts as the official declaration for opting into the 115BAB regime.

Step 3: Maintain Compliance

Maintain accurate records confirming the use of new machinery, manufacturing-only activities, and no disallowed operations. Any deviation may lead to disqualification.

Step 4: Monitor Tax Benefits Activation

Once approved, the company can calculate and pay tax at the 15% concessional rate from the year of commencement of manufacturing.

Step 5: Adhere to Transfer Pricing Rules

Ensure that transactions with associated enterprises are at arm’s length pricing. While limited documentation is needed, companies must still justify pricing policies for related party dealings.

Tax Rate and Compliance Under Section 115BAB

Section 115BAB provides clarity on applicable tax rates, related provisions, and reporting norms to maintain transparency and uniformity across manufacturing entities.

Applicable Corporate Tax Rate

Basic Rate: 15%
Surcharge: 10%
Health & Education Cess: 4%
Effective Rate: 17.16%

No deductions, incentives, or MAT (Minimum Alternate Tax) apply under this regime. Companies must compute tax purely on profits derived from manufacturing activities.

Applicability of Transfer Pricing Provisions

Transfer pricing provisions apply only if the company transacts with an associated enterprise. However, since most new manufacturing companies cater to domestic or export markets independently, compliance is simpler compared to regular corporate taxpayers.

Filing and Reporting Requirements

Companies must file ITR-6 electronically, mentioning the selection of Section 115BAB.
Maintain audited financial statements and supporting documents for verification.
Keep a record of the commencement certificate and production-related documents.

Conclusion

Section 115BAB is a game-changer for India’s manufacturing landscape, offering a globally competitive low corporate tax rate of 15%. It provides an excellent opportunity for new domestic companies to establish manufacturing units and expand operations with reduced tax burden and simplified compliance.

Businesses planning to set up in India should evaluate what is Section 115BAB, verify eligibility, and file Form 10-ID in time to lock in long-term tax benefits. By leveraging this section, manufacturers can enhance profitability while aligning with India’s vision of becoming a global manufacturing powerhouse.

Mohammad Abid Khan

Chartered Accountant

MRN No.: 468413

City: Varanasi

I’m CA Mohammad Abid Khan, a Chartered Accountant based in Varanasi with 10 years of experience. I specialize in GST and Income Tax, helping individuals and businesses stay compliant and optimize their taxes. I hold B.Com and M.Com degrees and enjoy simplifying finance through practical, easy-to-understand content.

Frequently Asked Questions

Which companies are eligible for Section 115BAB?

Companies incorporated on or after October 1, 2019, and commencing manufacturing by March 31, 2024, are eligible for Section 115BAB.
Can an existing corporate taxpayer opt for Section 115BAB?

No, only new domestic manufacturing companies formed after October 1, 2019, can opt for Section 115BAB benefits.
What is the corporate tax rate under Section 115BAB?

The basic tax rate is 15%, with a 10% surcharge and 4% cess, resulting in an effective tax rate of 17.16%.
How do transfer pricing rules apply to Section 115BAB?

Transfer pricing applies only to related party transactions and requires companies to ensure arm’s length pricing for associated enterprises.
What steps are needed to avail the benefits of Section 115BAB?

Eligible companies must file Form 10-ID, maintain compliance with manufacturing-only criteria, and file ITR-6 annually under the concessional tax regime.

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