To promote employment and increase manufacturing activity in the country, the government has been launching various incentive schemes and one of such benefit is in the form of lower income tax rate for new domestic manufacturing companies.
Section 115BAB was introduced in the Income Tax Act, 1961 to incentivise setting up new manufacturing companies. The law provides that basic income tax rate applicable on the profits of such new manufacturing company would be 15%. Even after including the applicable cess and surcharge the effective tax rate would come to 17.16%, which amounts to a substantial reduction over the normal rates of tax.

The aforesaid benefit of the lower rate of tax is available only in cases where the following conditions are fulfilled:

• The company has been set up and registered on or after 01st day of October 2019.

• The company commences manufacturing or production on or before 31st of March, 2024.

• The aforesaid benefit is available only to a company which sets up a new business and does not use plant and machinery which has already been used for any purpose. The benefit is also not available in cases where an existing business is split up or reconstructed to claim the benefit.

• The benefit is available only with respect to the business of manufacture or production of any article or thing. Certain specific exclusions have been provided in the statute to ensure that the aforesaid benefit is not claimed by non-deserving businesses and entities.

• Such company availing the lower tax would not be entitled to a number of deductions which have become more or less redundant.

• The company would be entitled to normal depreciation but would not be eligible for additional depreciation under clause (iia) of sub-section 1 of section 32 of the act.

It would be advisable to examine the said beneficial provision and take advantage wherever a new manufacturing activity is to be set up.