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TMI BlogConcessional tax regime for new manufacturing domestic companies : Clause 201 of the Income Tax Bill, 2025 Vs. Section 115BAB of the income tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... iled analysis of Clause 201, compares it with the prevailing legal framework, and explores its practical and policy implications. Objective and Purpose The legislative intent behind Clause 201 is to catalyze new manufacturing activity by granting a highly competitive tax rate-significantly below the standard corporate tax rates-to domestic companies that are set up and commence manufacturing within a defined period. The policy rationale is twofold: * Attract Investment: By offering a 15% tax rate (plus applicable surcharges and cess), the regime aims to make India an attractive destination for both domestic and foreign investors seeking to establish manufacturing operations. * Promote Compliance and Simplicity: The regime is designed to be free from most exemptions and deductions, thereby simplifying compliance and reducing disputes over tax incentives. Historically, India's corporate tax regime was characterized by high nominal rates and a plethora of sector-specific exemptions, leading to both complexity and base erosion. Section 115BAB, introduced by the Taxation Laws (Amendment) Act, 2019, marked a paradigm shift away from this approach. Clause 201 of the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to such deductions. * Amalgamation: In the event of amalgamation, the benefit continues only if the amalgamated company fulfills the original conditions. 4. Computation Mechanism Clause 201(3) and (4) lay down the manner of computing total income: * No Exemptions/Deductions: The regime is "exemption-free," i.e., companies forgo most tax holidays and deductions in exchange for the low rate. * Losses and Depreciation: Losses and unabsorbed depreciation attributable to disallowed deductions are deemed to have been given full effect to; no carry-forward is permitted. This approach ensures a clean break from the traditional system of layered incentives and prevents "grandfathering" of old tax benefits into the new regime. 5. Procedural Aspects Clause 201(2) specifies the timing and manner for exercising the option, aligning with the current framework u/r 21AF, which prescribes electronic filing of Form 10-ID. * Due Date: The option must be exercised before the due date for filing the first return of income. * Binding Effect: The choice is binding and cannot be subsequently withdrawn. 6. Revocation and Consequences of Non-Compliance If the company fails to comply with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d carry-forward of losses or depreciation linked to such deductions. * Require the option to be exercised by the due date for the first return of income, with irrevocability and permanent loss of eligibility upon breach of conditions. 2. Key Differences and Nuances * Drafting and Cross-Referencing: Clause 201 refers to new section numbers (e.g., sections 199, 200, 205) and chapters (e.g., Chapter VIII), reflecting the reorganization of the statute in the Income Tax Bill, 2025. Section 115BAB uses the numbering of the 1961 Act. * Computation Provisions: Clause 201(3) refers to specific sections (e.g., 45(2)(c), 47(1)(b), sections 146, 148, 205(1)(a)-(g)), which may correspond to existing provisions under the 1961 Act (e.g., sections 10AA, 32(1)(iia), 32AD, 33AB, 33ABA, 35(1)(ii), etc.), but with possible renumbering or consolidation. * Definitions and Exclusions: Section 115BAB contains detailed explanations and exclusions (e.g., specific exclusions for computer software, mining, marble conversion, etc.), which are not explicitly reproduced in Clause 201 but may be addressed elsewhere in the new Bill or through rules. * Guideline and Administrative Powers: Section 115BAB( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction, use of new plant/machinery, and prohibition on use of certain buildings Tax Rate on Manufacturing Income 15% 15% Tax Rate on Other Income 22% (no deduction/allowance) 22% (no deduction/allowance) Tax Rate on Certain STCG 22% 22% Tax Rate on Deemed Income 30% [section 205(4)] 30% (deemed income u/s 115BAB(6) second proviso) Option Exercise On or before due date for first return u/s 263(1); cannot be withdrawn; permanent loss on violation On or before due date for first return u/s 139(1); cannot be withdrawn; permanent loss on violation Computation of Income No deduction under specified sections (mirrors 115BAB); no set-off of attributable losses/depreciation No deduction under specified sections; no set-off of attributable losses/depreciation; specific reference to sections 10AA, 32(1)(iia), 32AD, 33AB, 33ABA, 35, 35AD, 35CCC, 35CCD, Chapter VI-A except 80JJAA/80M Loss/Depreciation Carry Forward Deemed to have been fully set off; no further deduction in subsequent years Same Amalgamation Option remains valid for amalgamated company if conditions continue to be met Same; with clarificatory explanation Exclusion of Certai ..... 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