Section 115BAB, inserted by the Taxation Laws (Amendment) Act 2019, offers a 15% flat corporate tax rate (effective rate with surcharge and cess: approximately 17.01%) for domestic companies that are incorporated on or after October 1, 2019, commence manufacturing before March 31, 2024 (extended several times), and satisfy conditions relating to the nature of their manufacturing activities. This rate — the lowest in India's corporate tax history for significant enterprises — was intended to attract global supply chain migration following the US-China trade war and accelerate domestic manufacturing ambition under Make in India.
Section 115BAB(1), Income Tax Act — Key Conditions
The total income of a company shall be taxable at the rate of fifteen percent if: (a) it is a domestic company incorporated on or after the 1st October 2019; (b) it has not commenced any business before that date; (c) it is not formed by reconstruction, amalgamation, or demerger of an existing entity; (d) it does not use plant and machinery previously used for any purpose in India; and (e) it is engaged in manufacture or production of any article or thing and research related thereto.
Statutory Reference
115BAB Qualification Traps
Second-Hand Machinery Rule
The company cannot use plant and machinery previously used (whether in India or imported) if such machinery was used in India. Exception: up to 20% of total machinery value can be used/imported. Many companies exceed this inadvertently during rapid scale-up.
Reconstruction or Demerger Bar
A company formed from splitting an existing business — even through a clean demerger — does not qualify. The company must be genuinely new-origin. Group restructurings that create "new" manufacturing entities frequently fail this test on scrutiny.
Dividend/Royalty Income Inclusion
If the 115BAB company earns income from royalties, technical services fees, or dividends from subsidiaries, these amounts are taxable at the normal rate (25.17%) not the 15% rate. Mixed income companies face a computationally complex rate split.
We have seen companies forego five years of 15% rate benefit because of a single piece of used imported equipment purchased during the operational ramp-up phase. The qualification journey must begin at company incorporation, not at the time of tax filing.
— Sami Tax Corporate Tax Desk, 2024
If You Are Setting Up a Manufacturing Entity
- Register the new company as a clean-slate incorporation — no business commenced before October 2019 linkage.
- Conduct a machinery audit: all plant and machinery must be new, and if importing second-hand equipment, keep detailed documentation that the 20% threshold is not breached.
- Structure intra-group IP and service agreements carefully — royalty income from related parties at the 15% company level can trigger the rate-split computation.
- We have assisted a dozen manufacturing groups in structuring their 115BAB entities correctly from day one, including commercial agreements with group companies that maintain the concessional rate across the full income stream.
- If you are setting up a new manufacturing entity in the next 12 months, a pre-incorporation structure review with Sami Tax will cost you ₹1–2 lakh and potentially save tens of crores in tax over a decade.