Section 115BA , 115BAA , 115BAB of Income Tax Act 1961

Domestic companies have to pay tax at a specified rate on profit earned in the previous year.

Generally the tax rate applicable on domestic companies is 30%. It is 25% if turnover or gross receipt of the domestic company does not exceed rupees 400 crores in the two years back of financial year in which you are looking for tax rate.

Eg. If you are looking for tax rate for FY. 2025-26 then you have to look turnover limit of Rs. 400 crores for FY. 2023-24. If your are looking for tax rate for FY 2024-25 then you have to look turnover limit of Rs. 400 crores of FY. 2022-23.

In addition to above tax rate there are three other sections i.e. Section 115ba, 115baa, 115bab of Income Tax Act 1961.

Domestic companies have the option to choose to pay tax in any of these sections, means if the domestic company opts to pay tax in either of the section 115ba, 115baa, 115bab then company need not to pay general tax rate i.e. 30% / 25% as the case may be.

Domestic companies can pay tax in either of Section 115ba, 115baa, 115bab only on fulfillment of certain conditions and once a company opts to pay tax in these sections then it has to follow the same in the subsequent years. It cannot be subsequently withdrawn.

Let’s understand what conditions are required to be fulfilling in Section 115ba, 115baa, 115bab of Income Tax Act 1961.

What is Section 115ba of Income Tax Act 1961?

Applicable Tax Rate under section 115ba is 25%.

This section is applicable from A.Y 2017-18. In this section, on fulfillment of the certain condition the tax rate will reduce to 25%.

Conditions to be fulfilled under section 115ba:

Companies should be newly set up domestic companies engaged in manufacturing / production of any article and include research or distribution of such articles.

Company must be set up and registered on or after 1st March 2016.

Following deduction not to be allowed while calculating Total Income under section 115ba:

Section 10AA: Deduction from special economic zones unit.
Section 32AD: Investment allowance towards new plant & machinery made in notified backward areas (Andhra Pradesh, Bihar, Telangana and West Bengal)
Section 33AB: Deduction for Tea, coffee and rubber manufacturing.
Section 33ABA: Deposits made by companies engaged in production or extraction of petroleum and natural gas in India towards the site restoration fund.
Deduction under section 32AC, 35(1) (ii) / (iia) / (iii) / 35(2AA) / (2AB), 35AC.
Section 35AD: Capital expenditure by any specified business.
Section 35CCC: Expenditure on an agriculture extension project.
Section 35CCD: Expenditure on skill development project.
Deduction in respect of certain income other than Section 80JJAA.
Additional depreciation under section 32(1)(iia).
No set off and carried forward losses attributed to any of the deductions mentioned above from earlier years.

Surcharge applicable is 7% if total income exceeds rupees 1 crore and 12% if it exceeds rupees 10 crores.

Cess is 4%.

MAT (Minimum alternate tax) is applicable @15%.

Also Read: Section 194N: (TDS on Cash Withdrawal)

What is section 115baa of Income Tax Act 1961?

Applicable Tax Rate under section 115baa is 22%.

This section is applicable from A.Y 2020-21. In this section, on fulfillment of the certain condition the tax rate will reduce to 22%.

For special income under section 111A, 112, 112A etc. rate are special rates as per respective sections.

Conditions to be fulfilled under section 115baa:

This section is for all domestic companies i.e. any company can choose to opt this section.

Following deduction not to be allowed while calculating Total Income under section 115baa:

Section 10AA: Deduction from special economic zones unit.
Section 32AD: Investment allowance towards new plant & machinery made in notified backward areas (Andhra Pradesh, Bihar, Telangana and West Bengal)
Section 33AB: Deduction for Tea, coffee and rubber manufacturing.
Section 33ABA: Deposits made by companies engaged in production or extraction of petroleum and natural gas in India towards the site restoration fund.
Section 35AD: Capital expenditure by any specified business.
Section 35CCC: Expenditure on an agriculture extension project.
Section 35CCD: Expenditure on skill development project.
Additional depreciation under section 32(1)(iia).
Deduction under section 35(1)(ii),(iia),(iii),35(2AA),35(2AB).
Chapter VI-A deduction (except section 80JJAA, 80M, 80 LA).
Can not set-off any B/F loss or un-absorbed depreciation which is related / attributed with deduction referred above.

Surcharge applicable is 10%. (Mandatory surcharge)

Cess is 4%.

MAT (Minimum alternate tax) is not applicable. B/F MAT credit can not be set off against income u/s 111baa. If assessee has b/f MAT credit then firstly he has to exhaust that credit and then can opt for 115baa subsequently.

Assessee can apply option under this section by filing Form 10-IC upto due date u/s 139 (1).

Also Read: Section 194M: TDS on Payment to Contractors and Professionals

What is section 115bab of Income Tax Act 1961?

Applicable Tax Rate under section 115bab is 15%.

This section is applicable from A.Y 2020-21. In this section, on fulfillment of the certain condition the tax rate will reduce to 15%.

For STCG of transfer of Non-appreciable asset rate is 22%.

For special income under section 111A, 112, 112A etc. rate are special rates as per respective sections.

Here 15% tax rate is applicable only for manufacturing business income only. Other income like house property, other sources is taxable at rate 22% on gross basis (without any deduction of expenditure).

Conditions to be fulfilled under section 115bab:

The Company should be set up as a domestic company engaged in manufacturing / production of any article and include research or distribution of such article.

Company must be set up & registered on or after 1st Oct 2019 and must commence manufacturing on or before 31st March 2024.

That company must not be formed by splitting up and reconstruction of a business already in existence except in case of a business re-established under section 33B.

That company must not use any previously used plant or machinery and building which was previously used for a hotel or convention centre.

Plants & machinery should be new, excepts:

A) 20% of total Plant and Machinery can be second hand.

B) Imported Plant & Machinery shall be treated as new only for this section.

Following deduction not to be allowed while calculating Total Income under section 115bab:

Section 10AA: Deduction from special economic zones unit.
Section 32AD: Investment allowance towards new plant & machinery made in notified backward areas (Andhra Pradesh, Bihar, Telangana and West Bengal)
Section 33AB: Deduction for Tea, coffee and rubber manufacturing.
Section 33ABA: Deposits made by companies engaged in production or extraction of petroleum and natural gas in India towards the site restoration fund.
Section 35AD: Capital expenditure by any specified business.
Section 35CCC: Expenditure on an agriculture extension project.
Section 35CCD: Expenditure on skill development project.
Additional depreciation under section 32(1)(iia).
Deduction under section 35(1)(ii),(iia),(iii),35(2AA),35(2AB).
Chapter VI-A deduction (except section 80JJAA, 80M, 80LA).
Can not set-off any B/F loss or un-absorbed depreciation which is related / attributed with deduction referred above.

Surcharge applicable is 10%. (Mandatory surcharge)

Cess is 4%.

MAT (Minimum alternate tax) is not applicable. B/F MAT credit cannot be set off against income u/s 115bab. If assesse has b/f MAT credit then firstly he has to exhaust that credit then opt for 115bab subsequently.

Assessee can apply option under this section by filling Form 10-ID upto due date u/s 139(1).

Following Business are not eligible for 115bab:

Printing of Books
Production of films
Mining
Development of Computer Software
Conversion of Marble Block into slabs
Bottling of Gas into Cylinder

Common points for all three sections

If you choose any of these sections 115ba, 115baa, 115bab of Income Tax Act 1961 then you have to follow the subsequent year also.
For opting these sections there is no restriction of turnover.

Conclusion

For Domestic companies the option is provided under section 115ba, 115baa, 115bab of Income Tax Act 1961 for lower the tax rates. But to opt for a lower tax rate certain conditions need to be fulfilled as discussed above. Once you opt, you have to follow it.

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