My client wants the 15 per cent rate for a new manufacturing company. What exactly must it satisfy, and what is the exposure once it is in?
Section 115BAB requires that the company was set up and registered on or after 1 October 2019 and commenced manufacturing or production of an article or thing on or before 31 March 2024, that it is not formed by splitting up or reconstruction, that it uses no previously used machinery or plant and no building previously used as a hotel or convention centre in respect of which s.80-ID was claimed, that it carries on no business other than manufacture or production and research in relation to, or distribution of, what it makes, and that its total income is computed without the excluded deductions. The option is exercised under s.115BAB(7) in Form 10-ID on or before the s.139(1) due date for the first return, and once exercised it cannot be withdrawn for that or any other previous year.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2020-04-01, reported as Section 115BAB, Income-tax Act 1961, inserted by the Taxation Laws (Amendment) Act 2019 with effect from the assessment year beginning 1 April 2020; Form 10-ID under Rule 21AF of the Income-tax Rules 1962. It bears on section 115BAB, section 115BAB(1), section 115BAB(2), section 115BAB(3), section 115BAB(6), section 115BAB(7), section 92BA, section 92F, section 139(1), section 80-ID of the Income Tax Act 1961, in Assessment & Scrutiny and How Tax Law Is Read matters.
Two traps sit under the rate. The first is the commencement date: the 31 March 2024 outer date has passed, so no company that had not begun manufacture by then can enter the regime at all, and the question in any live file is whether the company got in when it could, not whether it can get in now. The second is s.115BAB(6), which is the price of the low rate and is not a transfer pricing provision by name. Where, owing to a close connection with any other person or for any other reason, the course of business between them is so arranged that it produces to the company more than the ordinary profits that might be expected, the Assessing Officer computes the profits as may reasonably be deemed to have been derived — and by the second proviso to sub-section (6) the excess over that figure is deemed to be the company's income, which the second proviso to s.115BAB(1) taxes at thirty per cent rather than at 15 per cent. The first proviso to sub-section (6) directs that where the arrangement involves a specified domestic transaction under s.92BA the profits are determined having regard to arm's length price as defined in s.92F, which is how the transfer pricing machinery is imported. The consequence of failure is total: the fourth proviso to sub-section (1) makes the option invalid for the year of failure and every subsequent year, and the option cannot be re-exercised.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
Read aloud by your device. Press again to stop.
Section 115BAB(2)(a) requires that the company has been set-up and registered on or after the 1st day of October, 2019, and has commenced manufacturing or production of an article or thing on or before the 31st day of March, 2024, and that (i) the business is not formed by splitting up, or the reconstruction, of a business already in existence, subject to a proviso excepting a business formed by re-establishment, reconstruction or revival of an undertaking referred to in s.33B in the circumstances and within the period specified in that section; (ii) it does not use any machinery or plant previously used for any purpose; and (iii) it does not use any building previously used as a hotel or a convention centre in respect of which deduction under s.80-ID has been claimed and allowed. Explanation 2 to the previously-used-plant condition deems it complied with where the total value of previously used machinery or plant does not exceed twenty per cent of the total value of machinery or plant used. Clause (b) requires that the company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it, with an Explanation including generation of electricity and excluding development of computer software, mining, conversion of marble blocks or similar items into slabs, bottling of gas into cylinder, printing of books or production of cinematograph film, and any other notified business. Clause (c) requires the total income to be computed without the specified deductions and without set off of loss or depreciation attributable to them. Sub-section (3) deems such loss to have been given full effect to, with no further deduction in any subsequent year. Sub-section (7) requires the option to be exercised in the prescribed manner on or before the due date under s.139(1) for furnishing the first of the returns of income for a previous year relevant to an assessment year commencing on or after 1 April 2020, and provides that once exercised it applies to subsequent assessment years and, by its proviso, cannot be withdrawn for the same or any other previous year.
Not applicable — statutory position. The operative propositions are: (a) the manufacture-commencement outer date in s.115BAB(2)(a) is 31 March 2024 as the section currently reads; (b) previously used machinery or plant defeats the option unless it is within the twenty per cent threshold in Explanation 2 or is imported plant satisfying Explanation 1; (c) any business outside manufacture or production and research in relation to, or distribution of, what is manufactured defeats the option; (d) under s.115BAB(6) the Assessing Officer may recompute profits where a close connection produces more than ordinary profits, the excess being deemed to be the company's income, and where a specified domestic transaction under s.92BA is involved the profits are determined having regard to arm's length price as defined in s.92F; and (e) the option is exercised in Form 10-ID on or before the s.139(1) due date for the first return and is irrevocable.
Not applicable — statutory position.
Provided further that the amount, being profits in excess of the amount of the profits determined by the Assessing Officer, shall be deemed to be the income of the person.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppSection 115BAB requires that the company was set up and registered on or after 1 October 2019 and commenced manufacturing or production of an article or thing on or before 31 March 2024, that it is not formed by splitting up or reconstruction, that it uses no previously used machinery or plant and no building previously used as a hotel or convention centre in respect of which s.80-ID was claimed, that it carries on no business other than manufacture or production and research in relation to, or distribution of, what it makes, and that its total income is computed without the excluded deductions. The option is exercised under s.115BAB(7) in Form 10-ID on or before the s.139(1) due date for the first return, and once exercised it cannot be withdrawn for that or any other previous year. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 115BAB, section 115BAB(1), section 115BAB(2), section 115BAB(3), section 115BAB(6), section 115BAB(7), section 92BA, section 92F, section 139(1), section 80-ID of the Income Tax Act 1961. It is reported as Section 115BAB, Income-tax Act 1961, inserted by the Taxation Laws (Amendment) Act 2019 with effect from the assessment year beginning 1 April 2020; Form 10-ID under Rule 21AF of the Income-tax Rules 1962. Two traps sit under the rate. The first is the commencement date: the 31 March 2024 outer date has passed, so no company that had not begun manufacture by then can enter the regime at all, and the question in any live file is whether the company got in when it could, not whether it can get in now. The second is s.115BAB(6), which is the price of the low rate and is not a transfer pricing provision by name. Where, owing to a close connection with any other person or for any other reason, the course of business between them is so arranged that it produces to the company more than the ordinary profits that might be expected, the Assessing Officer computes the profits as may reasonably be deemed to have been derived — and by the second proviso to sub-section (6) the excess over that figure is deemed to be the company's income, which the second proviso to s.115BAB(1) taxes at thirty per cent rather than at 15 per cent. The first proviso to sub-section (6) directs that where the arrangement involves a specified domestic transaction under s.92BA the profits are determined having regard to arm's length price as defined in s.92F, which is how the transfer pricing machinery is imported. The consequence of failure is total: the fourth proviso to sub-section (1) makes the option invalid for the year of failure and every subsequent year, and the option cannot be re-exercised. If it applies to you, the first step is this: Fix the two dates in the file at the outset: the date of setting up and registration, which must be on or after 1 October 2019, and the date manufacture or production commenced, which must be on or before 31 March 2024.
Section 115BAB(2)(a) requires that the company has been set-up and registered on or after the 1st day of October, 2019, and has commenced manufacturing or production of an article or thing on or before the 31st day of March, 2024, and that (i) the business is not formed by splitting up, or the reconstruction, of a business already in existence, subject to a proviso excepting a business formed by re-establishment, reconstruction or revival of an undertaking referred to in s.33B in the circumstances and within the period specified in that section; (ii) it does not use any machinery or plant previously used for any purpose; and (iii) it does not use any building previously used as a hotel or a convention centre in respect of which deduction under s.80-ID has been claimed and allowed. Explanation 2 to the previously-used-plant condition deems it complied with where the total value of previously used machinery or plant does not exceed twenty per cent of the total value of machinery or plant used. Clause (b) requires that the company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it, with an Explanation including generation of electricity and excluding development of computer software, mining, conversion of marble blocks or similar items into slabs, bottling of gas into cylinder, printing of books or production of cinematograph film, and any other notified business. Clause (c) requires the total income to be computed without the specified deductions and without set off of loss or depreciation attributable to them. Sub-section (3) deems such loss to have been given full effect to, with no further deduction in any subsequent year. Sub-section (7) requires the option to be exercised in the prescribed manner on or before the due date under s.139(1) for furnishing the first of the returns of income for a previous year relevant to an assessment year commencing on or after 1 April 2020, and provides that once exercised it applies to subsequent assessment years and, by its proviso, cannot be withdrawn for the same or any other previous year. The matter was decided on 2020-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Not applicable — statutory position. The operative propositions are: (a) the manufacture-commencement outer date in s.115BAB(2)(a) is 31 March 2024 as the section currently reads; (b) previously used machinery or plant defeats the option unless it is within the twenty per cent threshold in Explanation 2 or is imported plant satisfying Explanation 1; (c) any business outside manufacture or production and research in relation to, or distribution of, what is manufactured defeats the option; (d) under s.115BAB(6) the Assessing Officer may recompute profits where a close connection produces more than ordinary profits, the excess being deemed to be the company's income, and where a specified domestic transaction under s.92BA is involved the profits are determined having regard to arm's length price as defined in s.92F; and (e) the option is exercised in Form 10-ID on or before the s.139(1) due date for the first return and is irrevocable.
Not applicable — statutory position. In the words reproduced by the source cited on this page: "Provided further that the amount, being profits in excess of the amount of the profits determined by the Assessing Officer, shall be deemed to be the income of the person."
It was decided by the CBDT Circulars & Instructions on 2020-04-01 and is reported as Section 115BAB, Income-tax Act 1961, inserted by the Taxation Laws (Amendment) Act 2019 with effect from the assessment year beginning 1 April 2020; Form 10-ID under Rule 21AF of the Income-tax Rules 1962. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 115BAB, section 115BAB(1), section 115BAB(2), section 115BAB(3), section 115BAB(6), section 115BAB(7), section 92BA, section 92F, section 139(1), section 80-ID, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Not applicable — statutory position. The operative propositions are: (a) the manufacture-commencement outer date in s.115BAB(2)(a) is 31 March 2024 as the section currently reads; (b) previously used machinery or plant defeats the option unless it is within the twenty per cent threshold in Explanation 2 or is imported plant satisfying Explanation 1; (c) any business outside manufacture or production and research in relation to, or distribution of, what is manufactured defeats the option; (d) under s.115BAB(6) the Assessing Officer may recompute profits where a close connection produces more than ordinary profits, the excess being deemed to be the company's income, and where a specified domestic transaction under s.92BA is involved the profits are determined having regard to arm's length price as defined in s.92F; and (e) the option is exercised in Form 10-ID on or before the s.139(1) due date for the first return and is irrevocable. It arises in Assessment & Scrutiny and How Tax Law Is Read matters, on section 115BAB, section 115BAB(1), section 115BAB(2), section 115BAB(3), section 115BAB(6), section 115BAB(7), section 92BA, section 92F, section 139(1), section 80-ID of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Test the 'no other business' condition against the actual revenue lines; trading or service income outside manufacture, research in relation to it and distribution of it is the condition most often broken in practice, and the Explanation to clause (b) excludes software development, mining, conversion of marble blocks into slabs, bottling of gas into cylinders and printing of books or production of cinematograph film from what counts as manufacture, while including generation of electricity. Value any second-hand plant against the twenty per cent threshold in Explanation 2 before it is put to use, and document the valuation. Where the group transacts with the 15 per cent company, price those transactions defensibly now and keep the s.92BA analysis on file — s.115BAB(6) is the provision the Assessing Officer will use, and the excess is not merely disallowed but deemed to be income taxed at a higher rate. Confirm that Form 10-ID was filed for the first year and on or before the s.139(1) due date for that year; a defect in the first year invalidates the option for every later year, and there is no withdrawal and no re-entry.
Still good law. This states the section as printed on the department's current section page, which carries the Year stamp '2025'. I did not verify from any primary source which Finance Act substituted the 31 March 2024 commencement date, because the page carried no footnote for it. I located no decision on s.115BAB(6) and none is cited; the only s.115BAB decision retrieved on this pass, Khalsae-Vehicles Pvt. Ltd. v DCIT (ITAT Delhi, 28 April 2026), concerns the timing of Form 10-ID and not sub-section (6). No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The text was read on the department's page incometaxindia.gov.in/w/section-115bab-7, which carries the Year stamp '2025' and is therefore a current version. That page carried NO footnote identifying which Finance Act substituted the manufacture-commencement date, so I have NOT verified from a primary source which enactment moved the date from 31 March 2023 to 31 March 2024; the entry states only what the current text reads. The first fetch of the page returned sub-section (2) partly as a table with the sub-clauses replaced by the placeholder '[Detailed conditions follow as shown in source]'; a second, targeted fetch returned clause (2)(a) with its sub-clauses (i) to (iii) and sub-sections (3) and (6) as running text, and that second fetch is what is relied on. Sub-section (1) as printed on that page carries FOUR provisos, in this order: twenty-two per cent on income neither derived from nor incidental to manufacture for which no rate is separately provided, with no deduction or allowance for expenditure; thirty per cent on income deemed so under the second proviso to sub-section (6); twenty-two per cent on short term capital gains on a capital asset on which no depreciation is allowable; and invalidity of the option for the assessment year relevant to the previous year of failure and for all subsequent assessment years. An earlier draft of this entry recorded only three provisos and attributed the thirty per cent rate on the deemed excess to the third proviso; that was wrong and has been corrected. A FURTHER STALE DEPARTMENTAL PAGE WAS FOUND ON VERIFICATION AND SHOULD BE ADDED TO THE KNOWN-STALE LIST: incometaxindia.gov.in/w/section-115bab-2 carries the Year stamp '2021' and still prints clause (2)(a) with the manufacture-commencement date as 'on or before the 31st day of March, 2023'; it surfaces in the department's own search results alongside the current -7 page and must never be used to state the current position. The date in the decided_on field, 1 April 2020, is the date from which s.115BAB takes effect and is NOT a decision date. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Not applicable — statutory position. The operative propositions are: (a) the manufacture-commencement outer date in s.115BAB(2)(a) is 31 March 2024 as the section currently reads; (b) previously used machinery or plant defeats the option unless it is within the twenty per cent threshold in Explanation 2 or is imported plant satisfying Explanation 1; (c) any business outside manufacture or production and research in relation to, or distribution of, what is manufactured defeats the option; (d) under s.115BAB(6) the Assessing Officer may recompute profits where a close connection produces more than ordinary profits, the excess being deemed to be the company's income, and where a specified domestic transaction under s.92BA is involved the profits are determined having regard to arm's length price as defined in s.92F; and (e) the option is exercised in Form 10-ID on or before the s.139(1) due date for the first return and is irrevocable.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Our Indian affiliate is paid at arm's length. Can more profit still be attributed to a PE?
A declaration was required by the due date and you filed it late. Is that fatal?
I did not tick s.115BAA in the return and filed Form 10-IC late. Can I still get the concessional rate?
I filed my return late. When is the 276CC offence committed, and is it still a first offence?