The Indian Government had introduced a favorable tax regime
for new manufacturing companies. The taxation laws Ordinance, 2019, passed on
September 20, 2019, has inserted Section 115BAB of the Income Tax Act, offering
you a low tax rate of 15% to new manufacturing companies. It is done in order
to promote the new manufacturing start-ups.
A domestic company satisfying the specified conditions
mentioned in (2) below can claim the benefit of section 115BAB. Domestic
company includes a company formed and registered in India. The benefit is
available from the financial year 2019-20 (AY 2020-21)The MoF introduced Section 115BAB to give domestic
manufacturing enterprises the opportunity to pay taxes at a rate of 15%.
Companies that choose concessional tax will no longer be eligible for
government breaks or incentives. For businesses that qualify for Section 115
BAB advantages, the MoF offers the option of filing taxes with or without the
concessional tax.
The addition of Section 115 BAB will aid in boosting economic
activity and job prospects. Additionally, it will encourage the growth of
investment, production, and liquidity. As a result, stakeholders will have more
profit and discretionary income, which will enhance demand and consumption.
1. To encourage industrial investment and support
the Government's "Make in India '' strategy, the Ordinance has added the
new provision section 115BAB to the Income Tax Act with effect from the
2019-2020 fiscal year
2. To encourage industrial investment and support
the Government's "Make in India '' strategy, the Ordinance has added the
new provision section 115BAB to the Income Tax Act with effect from the
2019-2020 fiscal year.
3. To encourage industrial investment and support
the Government's "Make in India '' strategy, the Ordinance has added the
new provision section 115BAB to the Income Tax Act with effect from the
2019-2020 fiscal year.
4. To encourage industrial investment and support
the Government's "Make in India '' strategy, the Ordinance has added the
new provision section 115BAB to the Income Tax Act with effect from the
2019-2020 fiscal year
Eligible
for Section 115BAB
Companies must be registered to form on or after
October 1, 2019, or to begin production by March 31, 2023. The business may
choose Section 115BAB and submit its paperwork by September 30 of each
assessment year.
Applicability
of Section 115BAB
The following bullet points discuss how transfer
pricing provisions are affected by Section 115BAB of the Income Tax Act:
Imagine if a business outperforms forecasted
earnings because of a close bond it has with another corporation or for any
other reason. The assessing officer can then choose to disregard these gains.
The assessing officer will only take into account the profits that a business
should reasonably realize in such a scenario.Any gains from a business transaction that
involves a "designated domestic transaction," as defined by Section
92BA, will be calculated in relation to the arm's-length price
Section
115BAB
New
effective tax rate, which will be used by domestic businesses benefiting from
115BAB, is 17.16%. Such a tax rate is broken down as follows:
Basic Rate @10%
Surcharge @10%
Cess @4%
Companies who choose Section 115BAB are required to
submit an application in the required format and within the allotted window of
time for submitting their first total income return.
A firm cannot, however, choose to opt in and
out of Section 115BAB according to how its total income is calculated from year
to year.The Assessing Officer (AO) shall determine
the reasonable profits and gains earned from the business in the event that
business between the assesse and any other person generates more profits for
the company than ordinary profits.
The number of profits for the specific domestic
transaction referred to in Section 92BA should be calculated in accordance with
Section 92F's transfer pricing rules. The specified domestic transaction
described in section 92BA has undergone the resultant modifications.
How to avail the benefit of a low corporate tax rate
A domestic company will be entitled
to the benefit of low corporate tax rate if it satisfies the following
conditions:
The
company has been set up and registered on or after 1 October 2019 and has
commenced manufacturing on or before 31 March 2023. Such a company should:
1. 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 33B2. Does not use any plant or machinery previously
used for any purpose. However, the company can use plant 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.
3. Does not use a building previously used as a
hotel or a convention centre.‘Hotel’ means a hotel of two-star, three-star or
four-star category as classified by the Central Government. ‘Convention centre’
means a building of a prescribed area comprising of convention halls to be used
for the purpose of holding conferences and seminars, being of such size and
number and having such other facilities and amenities, as may be prescribed
4. To
encourage industrial investment and support the Government's "Make in
India '' strategy, the Ordinance has added the new provision section 115BAB to
the Income Tax Act with effect from the 2019-2020 fiscal year
a. Deduction under section 10AA for units in
Special Economic Zone
b. Deduction
for additional depreciation under section 32 and investment allowance under
section 32AD towards new plant and machinery made in notified backward areas in
the states of Andhra Pradesh, Bihar, Telangana, and West Bengal
c. Deduction under section 33AB for tea, coffee and
rubber manufacturing companies
d. Deduction towards deposits made towards site
restoration fund under section 33ABA by companies engaged in extraction or
production of petroleum or natural gas or both in India
e. Deduction for expenditure made for scientific
research under section 35
f. Deduction for the capital expenditure incurred
by any specified business under section 35AD
g. Deduction for the expenditure incurred on an
agriculture extension project under section 35CCC or on skill development
project under section 35CCD
h. Deduction under Chapter VI-A in respect to
certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB and
so on, except deduction under section 80JJAA
i. Set-off of any loss carried forward from earlier
years if such losses were incurred in respect of the aforementioned deductions
Created & Posted by Suraj Kumar
Accountant at TAXAJ
TAXAJ is a consortium of CA, CS, Advocates & Professionals from specific fields to provide you a One Stop Solution for all your Business, Financial, Taxation & Legal Matters under One Roof. Some of them are: Launch Your Start-Up Company/Business, Trademark & Brand Registration, Digital Marketing, E-Stamp Paper Online, Closure of Business, Legal Services, Payroll Services, etc. For any further queries related to this or anything else visit TAXAJ
Watch all the Informational Videos here: YouTube Channel
TAXAJ Corporate Services LLP
Address: 1/11, 1st Floor, Sulahkul Vihar, Old Palam Road, Dwarka, Delhi-110078
Contact: 8961228919 ; 8802812345 | E-Mail: connect@taxaj.com