Section 115BAB — Manufacturing Company Tax Rate
Section 115BAB provides a concessional income tax rate of 15% for new domestic manufacturing companies incorporated on or after 1 October 2019 that commenced manufacturing before 31 March 2024 (extended to 31 March 2027 by Finance Act 2023), subject to strict eligibility conditions.
Section 115BAB was introduced simultaneously with Section 115BAA through the Taxation Laws (Amendment) Act, 2019, as part of the government's strategy to attract fresh investment into manufacturing and position India as a global manufacturing hub. The effective tax rate under this provision works out to approximately 17.01% after accounting for the 10% surcharge and 4% cess.
Eligibility requirements were tightly drawn. The company had to be incorporated after 1 October 2019, must not have been formed by splitting up or reconstruction of an existing business, must not have commenced production using previously used plant and machinery (with limited exceptions for imported second-hand machinery), and had to begin manufacturing or production of an article or thing. Service activities, trading, and certain notified activities were excluded.
The company could not use any building previously used as a hotel or convention centre. Additionally, the company was prohibited from carrying on any other business activity in earlier years beyond the manufacturing or production of the scheduled articles, though ancillary activities directly related to manufacturing were permitted.
Like Section 115BAA, the 115BAB option was irrevocable once exercised. MAT provisions under Section 115JB were inapplicable to companies opting for this regime. The election had to be made in Form 10-ID before the due date for filing the return for the relevant year.
The Finance Act 2023 extended the deadline for commencement of manufacturing from 31 March 2024 to 31 March 2027, broadening the window for companies to qualify. This extension was seen as an acknowledgment of delays in project commissioning caused by supply chain disruptions and global uncertainties.
For investors, 115BAB-eligible companies represented a structurally lower tax burden that could improve return on equity metrics and free cash flow generation, making them potentially attractive from a valuation standpoint compared to peers on higher tax rates.