Section 115BAB of Income Tax Act

The Indian Government had introduced a favourable 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. 

What is the 115BAB of the Income Tax Act?

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.

Characteristics of Section 115 BAB

• 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.
• Any domestic company that makes a manufacturing investment and is incorporated on or before October 1, 2019, has the option of paying income tax at a rate of 15% under Section 115BAB.
• Businesses that don't qualify for any exemptions or incentives and start production before or on March 31, 2023, are eligible for the advantages under Section 11F5BAB.
• Additionally, these companies are excluded from the Alternate Minimum Tax (MAT).

Who is 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.

Tax Liability of Section 115BAB

The 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:

How to Avail this Section?

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.

Transfer Pricing

The Assessing Officer (AO) shall determine the reasonable profits and gains earned from the business in the event that business between the assessee 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.