Section 115BAB: 15% Corporate Tax Guide for New Manufacturers
Section 115BAB of the Income Tax Act stands as a cornerstone of India’s strategy to become a global industrial powerhouse. Introduced to attract fresh investment into the manufacturing sector, this provision offers one of the lowest corporate tax rates in the world. By slashing the base tax to just 15% for newly incorporated companies, the government aims to level the playing field with other major manufacturing hubs. However, this benefit comes with strict eligibility criteria and a trade-off where companies must forgo most traditional tax incentives. For entrepreneurs looking to set up new factories in the 2025-26 period, understanding these all-or-nothing rules is essential for long-term financial planning and maximizing profitability.
What is Section 115BAB?
Section 115BAB is a Special Tax Regime for brand-new manufacturing companies. Under the standard rules, Indian companies usually pay a base tax of 25% to 30%. However, if you start a fresh manufacturing company and meet certain conditions, you can opt for a much lower base tax of 15%.
When you add the mandatory 10% Surcharge and 4% Health & Education Cess, the Effective Tax Rate comes to 17.16%. This is a flat rate, meaning it stays the same regardless of how much profit your company makes.
Who can benefit? (Eligibility Criteria 2025-26)
To prevent existing companies from simply rebranding themselves to get lower taxes, the law has very strict rules on who qualifies as a New Manufacturing Company.
1. Incorporation and Production Timelines
- Incorporation: The company must have been registered on or after October 1, 2019.
- Commencement: According to the latest updates for 2025, the company must have commenced its manufacturing or production activities on or before March 31, 2024.
Note: If you are setting up a factory now in late 2025, you would generally be taxed under Section 115BAA (22% base rate) unless the government announces a further extension for 115BAB in the upcoming 2026 budget.
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2. No Second-Hand Business
- The company must be entirely new. It cannot be formed by splitting up or reconstructing an existing business.
- Machinery Rules: You cannot use old plant and machinery. However, you can use second-hand machinery if it was imported from outside India and never used in India before. Also, a small buffer is allowed; up to 20% of your total machinery value can be old/used.
3. Business Focus
The company must be engaged solely in the business of manufacturing or producing an article or thing. This also includes related research and the distribution of the products you make.
What counts as manufacturing?
The tax department is very specific about what qualifies. Some businesses might look like manufacturing but are officially excluded from Section 115BAB:
Included (Eligible)
Excluded (Ineligible)
Automobile Manufacturing
Development of Computer Software
Textile Production
Mining Activities
Chemical/Pharma Production
Bottling of Gas into Cylinders
Generation of Electricity
Printing of Books
Food Processing
Production of Cinematograph Films
The All-or-Nothing Trade-off
To get that low 15% rate, your company has to give up almost every other tax break. You cannot claim:
- Tax Holidays: Deductions for units in SEZs (Section 10AA).
- Additional Depreciation: The extra 20% depreciation is usually allowed for new machinery.
- Investment Allowances: Deductions for investing in new plant and machinery in notified backward areas.
- Scientific Research: Deductions for payments made to research labs or universities.
- Chapter VI-A Deductions: Most deductions like 80-IA, 80-IB, etc. (However, Section 80JJAA for new employment and Section 80M for inter-corporate dividends are still allowed).
Why Section 115BAB is a game changer?
For a new factory, the benefits of this section go beyond just the 15% rate.
A. Exemption from MAT
Usually, companies have to pay a Minimum Alternate Tax (MAT) even if they have zero taxable income due to deductions. However, companies that opt for Section 115BAB are completely exempt from MAT. This simplifies your accounting significantly.
B. Global Competitiveness
With an effective rate of 17.16%, India becomes as competitive as Vietnam, Thailand, or Singapore. This makes it much easier for new Indian startups to attract foreign investors who are looking for high-growth, low-tax environments.
C. Predictability
Since the surcharge is fixed at 10% (unlike the 7% or 12% in the old regime, which changed based on income), a company can predict its tax liability with 100% accuracy from day one.
How to opt-in?
Choosing this section is a big decision because once you opt in, you can never go back.
- File Form 10-ID: You must submit this form online on the Income Tax portal.
- Timing: This must be done on or before the due date of filing your very first Income Tax Return.
- Irrevocable: If you choose 115BAB this year, you cannot switch back to the old regime or even the 22% (115BAA) regime in the future.
Conclusion
Section 115BAB is a powerful invitation for Makers in India. While the strict deadlines for starting production (March 2024) mean that brand-new setups starting today might have to look at the 22% regime (Section 115BAA), those who met the cutoff are sitting on one of the most profitable tax structures in the world. By trading complex deductions for a simple, flat 15% rate, the government has made it easier for manufacturers to focus on what they do best: building products. If you are running an eligible unit, staying compliant with the no-deduction rule is the only thing standing between you and a significantly higher bottom line.