Section 201 — Tax on income of new manufacturing domestic companies. Successor to s.115BAB of the 1961 Act.
Section 201 is in Chapter XIII — Determination of Tax in Special Cases, which runs from section 190 to section 235.
Sub-section (1) offers a domestic company engaged in the business of manufacture or production of any article or thing an optional rate structure, overriding the rest of the Act but subject to Parts A, B, E and this Part of Chapter XIII other than sections 199 and 200. The rates are in column C of the Table: 15% on total income other than the income in clauses (b), (c) and (d); 22%, without any deduction or allowance for expenditure or allowance, on income that has neither been derived from nor is incidental to manufacture or production of an article or thing and for which no specific rate is separately provided in those Parts; 22% on short-term capital gains from transfer of a capital asset on which no depreciation is allowable under the Act; and 30% on income deemed to be such under section 205(4). Column D carries the conditions: the option must be exercised in the manner in sub-section (2); the company must have been set up and registered on or after 1 October 2019; it must have commenced manufacturing or production on or before 31 March 2024; its total income must be computed as per sub-section (3); and it must fulfil the conditions in sub-section (5) and in section 205(2).
Sub-section (2) governs the option. It must be exercised in the prescribed manner on or before the section 263(1) due date for furnishing the first of the returns of income for any tax year; once exercised it applies to subsequent tax years; it cannot be withdrawn for the same or any other tax year; and where the company fails to fulfil the column D conditions in any tax year, the option becomes invalid for that year and subsequent years and the rest of the Act applies as if the option had never been exercised for those years.
Sub-section (3) requires total income to be computed without any deduction under section 45(2) or 47(1)(b), under Chapter VIII other than section 146 or 148, or under the sections specified in section 205(1)(a) to (g), and without set off of any loss or unabsorbed depreciation deemed so under section 116 where attributable to those deductions. Sub-section (4) deems that loss and depreciation to have been given full effect to, with no further deduction in any subsequent year. Sub-section (5) provides that on an amalgamation the option remains valid only in the case of the amalgamated company, and only if the column D conditions continue to be fulfilled by it.
The Act buys new manufacturing capacity with a low headline rate, and prices the exclusions into the bargain: the company gives up most Chapter VIII deductions and the losses and depreciation attributable to them, and non-manufacturing income is taxed at a higher rate so the concession does not extend to income the incentive was not meant to reach. The one-way, irrevocable nature of the option in sub-section (2) is what stops the rate being picked year by year.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Rate on total income other than the income in clauses (b), (c) and (d) | 15% | Domestic company engaged in manufacture or production of an article or thing that has exercised the option and fulfils the column D conditions | Sub-section (1), Table Sl. No. 1, column C(a) |
| Rate on income neither derived from nor incidental to manufacture or production | 22%, without any deduction or allowance in respect of any expenditure or allowance | Only where no specific rate of tax has been provided separately under Parts A, B, E and this Part of Chapter XIII | Sub-section (1), Table Sl. No. 1, column C(b) |
| Rate on short-term capital gains | 22% | Gains from transfer of a capital asset on which no depreciation is allowable under the Act | Sub-section (1), Table Sl. No. 1, column C(c) |
| Rate on income deemed under section 205(4) | 30% | Income deemed to be so under section 205(4) | Sub-section (1), Table Sl. No. 1, column C(d) |
| Earliest date of set-up and registration | On or after 1 October 2019 | Condition for the option | Sub-section (1), Table Sl. No. 1, column D(b) |
| Last date for commencing manufacture or production | On or before 31 March 2024 | Condition for the option | Sub-section (1), Table Sl. No. 1, column D(c) |
| Time for exercising the option | On or before the due date specified under section 263(1) for furnishing the first of the returns of income for any tax year | Exercised in the prescribed manner; once exercised it applies to subsequent tax years and cannot be withdrawn | Sub-section (2)(a) to (c) |
The option is not a rate on everything the company earns. Only income of the manufacturing business gets 15%; income that is neither derived from nor incidental to manufacture or production is taxed at 22% and, crucially, without any deduction or allowance for expenditure, so the expenses of earning it are lost as well. The deadline in sub-section (2)(a) is the section 263(1) due date for the first return, and missing it cannot be repaired later because the option cannot be exercised afresh once that first return date has passed for the company. Failure is expensive in both directions: under sub-section (2)(d) a breach of any column D condition invalidates the option for that year and every year after, and the Act applies as if it had never been exercised; while sub-section (4) deems the disallowed losses and unabsorbed depreciation to have been fully given effect to, so they are gone and cannot be revived in a later year. On amalgamation, sub-section (5) keeps the option alive only for the amalgamated company, and only while it keeps meeting the conditions.
A domestic company registered in 2021 that began manufacturing in 2023 exercises the option in its first return, filed by the section 263(1) due date. In a later tax year it earns Rs. 50 crore from manufacturing and Rs. 4 crore of income neither derived from nor incidental to manufacture, on which it had incurred Rs. 1 crore of expenditure. The Rs. 50 crore is taxed at 15%; the Rs. 4 crore is taxed at 22% under column C(b) with no deduction for the Rs. 1 crore. If in a following year the company breaches a column D condition, sub-section (2)(d) invalidates the option for that year and all subsequent years and the ordinary provisions of the Act apply as if the option had never been exercised.
You meet it in the prescribed form exercising the option, filed on or before the section 263(1) due date for the company's first return, in the tax computation attached to every later return, and in an assessment order holding that a column D condition was not fulfilled and that the option has become invalid.
22% (without any deduction or allowance in respect of any expenditure or allowance) on such income,— (i) which has neither been derived from nor is incidental to manufacturing or production of an article or thing
it shall be exercised on or before the due date specified under section 263(1) for furnishing first of the returns of income for any tax year
the option shall become invalid in respect of such tax year and subsequent tax years
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
See the circulars index.
