Section 115BAB of Income Tax Act – Complete Guide to 15% Corporate Tax (2026)
Section 115BAB of the Income Tax Act was introduced to promote manufacturing in India by offering a concessional corporate tax rate of 15% to new domestic manufacturing companies.
This provision was introduced as part of the government’s corporate tax reform to attract investment and boost industrial growth.
If you are planning to incorporate a manufacturing company, understanding Section 115BAB can significantly reduce your tax burden.
What is Section 115BAB?
Section 115BAB provides a reduced tax rate of:
15% corporate tax
(Effective rate approx. 17.16% including surcharge & cess)
It applies only to eligible new domestic manufacturing companies incorporated after a specified date.
Objective of Section 115BAB
The government introduced this section to:
- Boost Make in India initiative
- Encourage new manufacturing units
- Attract foreign investment
- Increase employment
It is one of the lowest corporate tax rates in India.
Eligibility Conditions Under Section 115BAB
To claim benefits under Section 115BAB, a company must:
- Be incorporated on or after 1 October 2019
- Start manufacturing before prescribed deadline
- Be a domestic company
- Not be formed by splitting or reconstruction of existing business
- Not use previously used plant & machinery beyond prescribed limits
The company must not claim certain deductions and exemptions.
Tax Rate Under Section 115BAB
|
Particular |
Tax Rate |
|
Base Tax |
15% |
|
Surcharge |
10% |
|
Health & Education Cess |
4% |
|
Effective Rate |
Approx. 17.16% |
MAT (Minimum Alternate Tax) does not apply under this section.
Activities Eligible Under Section 115BAB
Eligible activities include:
- Manufacturing or production of goods
- Generation of electricity
- Processing activities integral to manufacturing
Pure trading companies are not eligible.
Conditions & Restrictions
A company opting for Section 115BAB:
- Cannot claim additional depreciation
- Cannot claim certain deductions under Chapter VI-A
- Must exercise option before due date of filing return
The option once exercised cannot be withdrawn.
Comparison: 115BA vs 115BAB vs Normal Corporate Tax
|
Provision |
Tax Rate |
Applicable To |
|
Normal Corporate Tax |
25% / 30% |
All companies |
|
Section 115BA |
22% |
Domestic companies |
|
Section 115BAB |
15% |
New manufacturing companies |
Section 115BAB offers the lowest tax rate.
How to Opt for Section 115BAB?
To claim benefit:
- Company must file Form 10-ID
- Option must be exercised before filing ITR
- Compliance with all conditions must be ensured
Professional tax planning is recommended before opting.
FAQs – Section 115BAB of Income Tax Act
What is tax rate under Section 115BAB?
15% base tax (effective approx. 17.16%).
Is MAT applicable?
No.
Can trading company opt?
No, only manufacturing companies.
Can option be withdrawn?
No, once exercised it cannot be reversed.
