The Union Budget 2022 has extended the sunset date for commencement of manufacturing activities for availing concessional tax rates under section 115BAB of the Income-tax Act, 1961 (‘Act’) by a newly incorporated manufacturing entity by a year from 31st March 2023 to 31st March 2024.
Finance Minister’s Speech on Extension of Date under section 115BAB
While presenting the Union budget 2022, Finance Minister has announced incentives to newly incorporated manufacturing entities under the concessional tax regime. She stated that in an effort to establish a globally competitive business environment for certain domestic companies, a concessional tax regime of 15 per cent tax was introduced by the government for newly incorporated domestic manufacturing companies.
She proposed to extend the last date for commencement of manufacturing or production under section 115BAB by one year i.e. from 31st March, 2023 to 31st March, 2024.
Provisions of Section 115BAB
Section 115BAB was inserted in the statute by the Taxation Law (Amendment) Act, 2019 to provide for a concessional tax regime for a newly incorporated domestic manufacturing company @ 15% subject to fulfilment of certain conditions and if they forego specified deductions.
Sub-section (2) of section 115BAB of the Act contains the conditions required to be fulfilled by such companies.
One of the conditions is that such domestic manufacturing companies must be set up and registered on or after October 1, 2019, and commence manufacturing or production activities on or before March 31, 2023. Clause (a) of said sub-section (2) provides that the new domestic manufacturing company is required to be set up and registered on or after 01.10.2019, and is required to commence manufacturing or production of an article or thing on or before 31st March, 2023.
Proposed Amendment to Section 115BAB
It is proposed to amend section 115BAB so as to extend the date of commencement of manufacturing or production of an article or thing, from 31st March, 2023 to 31st March, 2024.
For this purpose, Clause 26 of the Finance Bill, 2022 proposed to amend section 115BAB in the following manner-
Amendment of section 115BAB.
26. In section 115BAB of the Income-tax Act, in sub-section (2), in clause (a), for the figures “2023”, the figures “2024” shall be substituted.
Explaining the proposed amendment to section 115BAB
Clause 26 seeks to amend section 115BAB of the Act relating to tax on income of new manufacturing domestic companies.
Sub-section (2) of the said section specifies the conditions which a domestic company needs to satisfy to be eligible to be taxed under this section.
Clause (a) of sub-section (2) of the said section requires that the domestic company should be set-up and registered on or after the 1st day of October, 2019, and should have commenced manufacturing or production of an article or thing on or before the 31st day of March, 2023.
It is proposed to amend the said clause so as to extend the date of commencement of manufacturing or production of an article or thing from 31st March, 2023 to 31st March, 2024.
This amendment will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-2023 and subsequent assessment years.
Stated Rationale for the proposed amendment
The intent of the introduction of section 115BAB was to attract investment, create jobs and trigger overall economic growth.
However, the cumulative impact of the persistence of the COVID-19 pandemic has resulted in some delay in setting up/registration of new domestic companies and the commencement of manufacturing or production by such companies, if they have been set up and registered.
Hence, in order to provide relief to such companies, the amendment is proposed.
Concluding Remarks
With this extension, the newly incorporated domestic manufacturing companies can now commence their production or manufacturing activities till FY 2023-24.
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