Key Takeaways on Section 115BAB
- New domestic manufacturing companies that commenced production on or before 31 March 2024 pay a flat 15% rate. With the fixed 10% surcharge and 4% cess the effective rate is 17.16%.
- The company must have been incorporated on or after 1 October 2019 and must not have been formed by splitting up or reconstruction of an existing business.
- Plant and machinery must be new. Previously used machinery is allowed only if it was used outside India and never claimed depreciation in India, or if it is within 20% of total plant value.
- The option is exercised by filing Form 10-ID before the ITR due date. It is irrevocable.
- MAT under Section 115JB does not apply. But the company gives up additional depreciation, SEZ deductions, Section 35 research benefits and most of Chapter VI-A.
- The sunset clause expired 31 March 2024. Companies that did not commence manufacturing by that date cannot opt in. They may use Section 115BAA at 22% instead.
- If a 115BAB company violates its conditions, it loses the 15% rate permanently and moves to the normal regime. It may then opt for Section 115BAA instead.
Section 115BAB is the lowest corporate tax rate India offers. Introduced by the Taxation Laws (Amendment) Act 2019 and effective from Assessment Year 2020-21, it was designed to pull manufacturing investment into India by giving new factories a rate that undercuts most of Southeast Asia.
The rate is real: 15% base, 10% surcharge, 4% cess, landing at 17.16% effective. For a manufacturing company with Rs 10 crore profit, that is Rs 1.72 crore in tax against Rs 2.52 crore under Section 115BAA or Rs 2.78 crore under the normal 25% regime. The conditions, however, are strict, and a single violation costs the rate forever.
This guide covers who qualifies, the machinery rules, what deductions are forfeited, the Form 10-ID filing, what happens on violation, and how 115BAB compares with 115BAA and the normal regime. For the full rate landscape, see our corporate income tax rates guide.
Looking for expert help with section 115BAB, 15 percent corporate tax rate India, new manufacturing company tax rate, Form 10-ID filing, 115BAB eligibility conditions, 115BAB vs 115BAA? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Tax Rate Structure
| Component | Rate |
|---|---|
| Base rate | 15% |
| Surcharge | 10%, fixed at all income levels |
| Health and education cess | 4% |
| Effective rate | 17.16% |
The surcharge is a flat 10% regardless of total income. Under the normal regime, surcharge is nil up to Rs 1 crore, 7% from Rs 1 to Rs 10 crore, and 12% above Rs 10 crore. Section 115BAB locks it at 10%.
How 17.16% Compares
| Total income | Normal 25% regime | Section 115BAA (22%) | Section 115BAB (15%) | Saving vs normal |
|---|---|---|---|---|
| Rs 1 crore | Rs 26,00,000 (26%) | Rs 25,16,800 (25.17%) | Rs 17,16,000 (17.16%) | Rs 8,84,000 |
| Rs 5 crore | Rs 1,39,10,000 (27.82%) | Rs 1,25,84,000 (25.17%) | Rs 85,80,000 (17.16%) | Rs 53,30,000 |
| Rs 10 crore | Rs 2,78,20,000 (27.82%) | Rs 2,51,68,000 (25.17%) | Rs 1,71,60,000 (17.16%) | Rs 1,06,60,000 |
| Rs 50 crore | Rs 14,56,00,000 (29.12%) | Rs 12,58,40,000 (25.17%) | Rs 8,58,00,000 (17.16%) | Rs 5,98,00,000 |
At Rs 50 crore profit, 115BAB saves nearly Rs 6 crore annually over the normal regime. That is the reason the Government put strict gates around it.
Eligibility Conditions
Who Qualifies
Section 115BAB(2) lays down four conditions that must all be met.
Condition 1: Incorporation date. The company must be a domestic company incorporated in India on or after 1 October 2019 under the Companies Act 2013 (or Companies Act 1956, in theory). A company incorporated on 30 September 2019 does not qualify, regardless of when it commenced manufacturing.
Condition 2: Commencement of manufacturing. The company must have commenced the manufacture or production of an article or thing on or before 31 March 2024. This date was originally 31 March 2023 and extended by the Finance Act 2022 to account for pandemic delays. No further extension has been notified.
Condition 3: Business activity. The company must be engaged solely in the business of manufacture or production of any article or thing, and research in relation to such manufacture or production, or distribution of such articles or things manufactured or produced by it. The word "solely" is strict: a company that earns revenue from services unrelated to its manufactured products risks disqualification.
Condition 4: Not formed by splitting or reconstruction. The company must not have been formed by splitting up or reconstruction of a business already in existence, except in the circumstances covered by Section 33B (where a business is reconstructed after a natural disaster or enemy action).
What Counts as Manufacturing
"Manufacture or production of any article or thing" follows the definition the Act has developed through decades of case law. It means bringing into existence a new, commercially distinct article through a process that changes the raw materials.
The following do not qualify as manufacturing under Section 115BAB:
| Excluded activity | Why |
|---|---|
| Development of computer software in any form | Software is treated as a service, not manufacturing |
| Mining | Extraction, not transformation |
| Conversion of marble blocks into slabs | Processing, not manufacturing (Supreme Court: Arihant Tiles) |
| Bottling of gas into cylinders | Packaging, not manufacturing |
| Printing of books | Reproduction, not manufacturing |
| Production of cinematograph films | Creative production, not manufacturing |
| Any other business notified by Central Government | Catch-all for future exclusions |
The exclusion list is drawn from Explanation 2 to Section 115BAB(4). If your product line is anywhere near the boundary, get an opinion before opting in, because the consequence of getting it wrong is described in the violation section below.
Prohibited Products: The Eleventh Schedule
Section 115BAB(3) additionally excludes companies that manufacture any article or thing specified in the Eleventh Schedule to the Income Tax Act. The Eleventh Schedule lists items where a concessional rate was not intended:
- Cigarettes and cigars, manufactured tobacco and tobacco substitutes
- Aerated waters
If even one of your product lines falls within the Eleventh Schedule, the entire company is ineligible.
Plant and Machinery Conditions
This is where most companies trip up.
New Machinery Requirement
Section 115BAB(2)(b) requires that the plant and machinery used by the company has not been previously used for any purpose. The intent is clear: the incentive is for fresh capital expenditure, not repurposing old equipment.
Exception 1: Imported Second-Hand Machinery
Machinery or plant previously used outside India is not treated as previously used if all three conditions are met:
- The machinery was not at any time used in India before installation by the company.
- It was imported into India from a country outside India.
- No depreciation deduction has been allowed or is allowable to any person in India in respect of that machinery before installation.
This exception allows manufacturing units to import refurbished equipment from, say, Germany or Japan, as long as it was never installed or depreciated in India.
Exception 2: The 20% Threshold
Where some previously used machinery is used by the company (whether domestic or imported), the new machinery condition is deemed satisfied if the total value of previously used plant and machinery does not exceed 20% of the total value of all plant and machinery used by the company.
| Total plant value | Maximum allowed previously used | Minimum new machinery |
|---|---|---|
| Rs 10 crore | Rs 2 crore (20%) | Rs 8 crore (80%) |
| Rs 50 crore | Rs 10 crore (20%) | Rs 40 crore (80%) |
The valuation is at cost, not written-down value.
Building Restriction
Section 115BAB(2)(b) also specifies that the company must not use any building previously used as a hotel of two-star or above category or a convention centre. This is to prevent hotels from claiming the manufacturing rate by repurposing their properties.
What You Give Up
Like Section 115BAA, opting for 115BAB means forfeiting a long list of deductions and exemptions.
Deductions and Exemptions Forfeited
| Provision | What it covers |
|---|---|
| Section 10AA | SEZ unit profits |
| Section 32(1)(iia) | Additional depreciation at 20% or 35% |
| Section 32AD | Investment allowance in notified backward areas |
| Section 33AB | Tea, coffee and rubber development account |
| Section 33ABA | Site restoration fund |
| Section 35(1)(ii), (iia), (iii), 35(2AA), 35(2AB) | Contributions to and in-house scientific research |
| Section 35AD | Capital expenditure of specified businesses |
| Section 35CCC | Agricultural extension project |
| Section 35CCD | Skill development project |
| Chapter VI-A (except 80JJAA, 80M) | Includes 80-IA, 80-IAB, 80-IB, 80-IC, 80-IE, 80-IAC |
Deductions That Survive
| Provision | What it covers |
|---|---|
| Section 32 | Normal depreciation at WDV rates |
| Section 37(1) | Ordinary business expenditure |
| Section 80JJAA | 30% deduction for additional employee cost, for three years |
| Section 80M | Dividend received from another domestic company and distributed onward |
Section 80JJAA is significant for manufacturing companies with large workforces. A company adding 200 employees at Rs 50,000 per month gets a deduction of Rs 1.08 crore over three years, and that stacks with the 15% rate.
Loss and Depreciation Rules
Brought-forward losses and unabsorbed depreciation attributable to forfeited deductions cannot be set off after opting in. However, where the unabsorbed depreciation includes additional depreciation under Section 32(1)(iia), the amount is added back to the written-down value of the relevant asset block as on 1 April of the first year of the option. It comes back as normal depreciation over the block's remaining life.
MAT Does Not Apply
| Aspect | Normal regime | Section 115BAB |
|---|---|---|
| MAT under Section 115JB | Applies at 15% of book profit | Does not apply |
| Book profit computation | Required | Not required |
| MAT credit | Available for set-off | Not available |
This is one of the clearest advantages. A manufacturing company with heavy depreciation charges that regularly falls below the MAT threshold under the normal regime simply does not face MAT under 115BAB. The 15% of total income is the final number.
Form 10-ID: Exercising the Option
| Requirement | Detail |
|---|---|
| Form | Form 10-ID |
| Rule | Rule 21AF of the Income Tax Rules 1962 |
| Deadline | On or before the Section 139(1) due date for the relevant assessment year |
| Mode | Electronic, with digital signature or electronic verification code |
| Sequence | File before or along with the ITR; report in ITR-6 |
| Revocable | No. Once exercised, applies to all subsequent years |
| Repeat filing | Not required after the first valid filing |
Steps on the E-Filing Portal
- Log in at incometax.gov.in with the company PAN.
- Navigate to e-File, then Income Tax Forms, then File Income Tax Forms.
- Select Form 10-ID and the relevant assessment year.
- Confirm company details and declare that all conditions in Section 115BAB(2) are satisfied.
- Submit and verify with the authorised signatory's DSC or EVC.
- Note the acknowledgement number before filing the ITR.
Filing ITR-6 and computing tax at 15% does not exercise the option. Form 10-ID is a separate filing. Its absence will result in assessment at the normal rate.
The Sunset Clause
The sunset clause for Section 115BAB expired on 31 March 2024. The timeline:
| Date | Event |
|---|---|
| 1 October 2019 | Section 115BAB introduced. Incorporation window opens |
| 31 March 2023 | Original deadline for commencing manufacturing |
| Finance Act 2022 | Deadline extended to 31 March 2024 (pandemic relief) |
| 31 March 2024 | Window closed. No further extension notified |
A company incorporated after 1 October 2019 that commenced manufacturing on 15 April 2024 cannot opt for 115BAB. Its options are Section 115BAA at 22% (effective 25.17%) or the normal regime.
Companies that already opted in before the sunset continue to get the 15% rate for all future years, as long as they meet the conditions. The sunset only closed the entry window, not the benefit.
What Happens on Violation
Section 115BAB(4) and (5) spell out the consequences.
If a 115BAB company fails to satisfy the conditions of sub-section (2) in any previous year:
- The 15% rate is lost permanently. The option under Section 115BAB is treated as never having been exercised.
- The company is assessed under the normal regime for that year and all subsequent years.
- The company becomes eligible for Section 115BAA (22%) from the year of violation onward, if it chooses to file Form 10-IC. This is a one-way door out: once you leave 115BAB, you cannot return to it.
- MAT applies from the year of violation.
Transfer Pricing Rule
Section 115BAB(3) incorporates the arm's-length test from Section 80IA(10). If any business arrangement between the 115BAB company and a related party is not at arm's length, the Assessing Officer can recompute the company's income as if the transaction were at market price. This prevents companies from shifting profits into the 15% entity through below-market purchases from a group company.
Section 115BAB Versus 115BAA: Which Applies Now
| Aspect | Section 115BAA | Section 115BAB |
|---|---|---|
| Base rate | 22% | 15% |
| Effective rate | 25.17% | 17.16% |
| Who qualifies | Any domestic company | New manufacturing companies only |
| Still open for new entrants | Yes | No (sunset 31 March 2024) |
| Manufacturing required | No | Yes |
| Incorporation date | Any | On or after 1 October 2019 |
| Form | Form 10-IC | Form 10-ID |
| MAT | Does not apply | Does not apply |
| Irrevocable | Yes | Yes |
| Fallback if conditions violated | Normal regime | Normal regime or 115BAA |
For a company incorporated today, 115BAA is the only concessional route. For a manufacturing company that commenced production before 31 March 2024 and has not yet opted in, the question is whether the stricter conditions of 115BAB are worth the additional 8-percentage-point saving.
Practical Decision Framework
Opt for 115BAB If
- Your company was incorporated on or after 1 October 2019 and commenced manufacturing on or before 31 March 2024.
- You manufacture an article or thing (not software, mining, or services).
- Your products are not in the Eleventh Schedule (tobacco, aerated waters).
- At least 80% of your plant and machinery is new.
- You have no live Section 10AA or 80-IA claims worth more than the rate differential.
- Your company earns revenue solely from manufacturing, research related to that manufacturing, or distribution of its own manufactured products.
Stick with 115BAA If
- You commenced manufacturing after 31 March 2024.
- Your company earns mixed revenue from manufacturing and services.
- You are uncomfortable with the risk of losing the rate permanently on a conditions violation.
- Your plant includes more than 20% previously used machinery.
Stay on the Normal Regime If
- You hold substantial MAT credit that will be lost on opting in.
- You have live incentive claims under Section 10AA, Section 35, or Chapter VI-A that exceed the rate saving.
Compliance Checklist for Existing 115BAB Companies
Companies already on 115BAB should verify compliance each year before filing:
- All manufacturing activity is within the original scope. No new service lines added.
- No products from the Eleventh Schedule entered the product mix.
- Previously used plant and machinery is still within 20% of total plant value.
- All related-party transactions are at arm's length.
- Form 10-ID was filed for the first year and acknowledgement is on record.
- ITR-6 correctly reports the 115BAB option.
- No deductions from the forfeited list have been claimed.
A single slip in any year triggers the permanent exit. Annual review is not optional.
