Section 115BAE lets a resident co-operative society opt to pay tax at fifteen per cent for previous years relevant to assessment years beginning on or after 1 April 2024. The society must have been set up and registered on or after the 1st day of April, 2023 and must have commenced manufacture or production on or before the 31st day of March, 2024. Its business must not be formed by splitting up or reconstruction of an existing business, and it must not use machinery or plant previously used, subject to the twenty per cent tolerance and the imported-machinery exception. It must be engaged only in manufacture or production and related research or distribution. Generation of electricity counts as manufacture; software development, mining and certain other activities do not.
Income neither derived from nor incidental to manufacture, and with no specific rate in the Chapter, is taxed at twenty-two per cent without any deduction or allowance. Short-term capital gains on a capital asset on which no depreciation is allowable are taxed at twenty-two per cent. Income deemed under sub-section (4) is taxed at thirty per cent. The section is "Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024".
Operative consequences
If the conditions fail in any previous year, the option becomes invalid for that and later assessment years.
Where a close connection or arrangement produces more than ordinary profits, the Assessing Officer takes reasonable profits. For a specified domestic transaction under s. 92BA, the arm's length price is used, and the excess is deemed income taxed at thirty per cent.
The option is exercised by the due date under s. 139(1) for the first return and cannot be withdrawn.
Status
Section 115BAE is operative for AY 2026-27 for societies that met the commencement date of 31 March 2024. The Finance Act, 2026 does not amend it.
The 2025 counterpart is s. 204, with common conditions in s. 205. The Finance Act, 2026 inserted "or 150" in s. 204(3)(a)(i) and added sub-section (5), which allows the deduction under s. 149(2)(d)(ii) up to dividend distributed to members at least one month before the return due date.
The 1961 Act governs AY 2026-27 and earlier assessment years; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject the 2025 Act provision is s. 204.
Case Laws & Commentary
SECTION 115BAE — TAX ON INCOME OF CERTAIN NEW MANUFACTURING CO-OPERATIVE SOCIETIES
Case Laws & Commentary (Income-tax Act, 1961 as amended by Finance Act, 2026)
A. SECTION COMMENTARY
A.1 Structural position & legislative purpose
Section 115BAE, inserted by the Finance Act, 2023 with effect from assessment year 2024-25, is the co-operative-society counterpart of section 115BAB. It offers a new resident manufacturing co-operative society the option to be taxed at a concessional rate of fifteen per cent (effective rate 17.16% with surcharge of 10% and cess of 4%), to incentivise fresh manufacturing investment in the co-operative sector. The society must be set up and registered on or after 1 April 2023, commence manufacturing on or before 31 March 2024, be engaged in the manufacture or production of an article or thing (and incidental research/distribution), and must not be formed by splitting up or reconstruction of an existing business or by using previously-used plant and machinery (beyond the permitted limit). Specified incentive deductions are forgone, AMT (section 115JC) does not apply, and the option (Form 10-IFA, by the return due date for the first year) is irrevocable.
As in section 115BAB, an anti-abuse safeguard applies: where the business produces more than ordinary profits owing to a close connection or specified arrangement, the Assessing Officer may recompute the profits at arm's length and the excess is taxed at thirty per cent.
A.2 Sub-section / clause taxonomy
Sub-section (1): the 15% charge at the society's option, subject to the conditions; its provisos tax non-manufacturing income at twenty-two per cent without deductions, the deemed excess profit at thirty per cent and short-term capital gains on assets not eligible for depreciation at twenty-two per cent, and invalidate the option on failure of the conditions. Sub-section (2): eligibility - registration on or after 1 April 2023; commencement of manufacture by 31 March 2024; not formed by splitting up/reconstruction; no prohibited use of old plant/machinery; engaged only in manufacture/production; income computed without the specified incentive deductions. Sub-section (3): loss and depreciation attributable to those deductions deemed fully given effect to. Sub-section (4): the close-connection excess-profit recomputation (arm's length price for specified domestic transactions), the excess being deemed income. Sub-section (5): exercise of the option (Form 10-IFA) by the return due date, irrevocable.
A.3 Core doctrinal themes
Theme (1) - Lowest rate for genuinely new co-operative manufacturing: 15% mirrors section 115BAB, reserved for new manufacturers meeting the no-splitting/no-old-assets conditions and the registration/commencement windows.
Theme (2) - Arm's-length excess-profit safeguard: the close-connection excess is recomputed and taxed at 30%, importing a transfer-pricing-style anti-abuse rule into the co-operative concession.
Theme (3) - Procedural option and irrevocability: the Form 10-IFA filing by the return due date for the first year is the gateway and is irrevocable, mirroring the 115BAB/Form 10-ID discipline.
Inserted by the Finance Act, 2023 (w.e.f. AY 2024-25), completing the co-operative concessional architecture (alongside section 115BAD at 22%). It closely tracks section 115BAB in structure, conditions and safeguards. The registration window (on or after 1 April 2023) and the commencement-of-manufacture cut-off (31 March 2024) are central eligibility facts.
Finance Act 2026: no amendment to section 115BAE. The optional 15% regime for new manufacturing co-operative societies continues for AY 2026-27 onward (subject to the registration/commencement windows already prescribed).
A.5 CA practitioner pointers
(1) Confirm registration on or after 1 April 2023 and commencement of manufacture by the statutory cut-off - these windows are narrow and decisive. (2) Test the no-splitting/no-old-assets conditions rigorously. (3) File Form 10-IFA by the return due date for the first opting year; the option is irrevocable. (4) Ring-fence manufacturing income (15%) from non-manufacturing income (22%) and capital gains. (5) Document arm's-length pricing for any close-connection transactions to forestall the 30% excess-profit recomputation.
B. FINANCE ACT, 2026 - IMPACT NOTE
Section 115BAE is NOT amended by the Finance Act, 2026. The optional 15% regime for new manufacturing co-operative societies, with its eligibility windows, the Form 10-IFA condition and the arm's-length excess-profit safeguard, continues for AY 2026-27 onward.
C. CASE LAW - CLUSTERED BY ISSUE
Cluster C-1 : Eligibility and the procedural option (cognate authorities)
The sub-section (2) eligibility safeguards and the Form 10-IFA timeliness condition (cognate to section 115BAB).
Principle: The 15% rate is confined to a genuinely new manufacturing co-operative meeting the registration/commencement windows and the no-splitting/no-old-assets conditions - read in light of the settled 'splitting up/reconstruction' and 'old plant and machinery' jurisprudence under the former incentive sections. The option is gated by a timely Form 10-IFA, delay in which is condonable on the analogy of the Form 10-IC/10-ID jurisprudence.
Relevance: Frames the eligibility and procedural risks; the practitioner applies the established incentive-section eligibility jurisprudence and the cognate condonation line, the section itself being too recent to have generated dedicated authority.
Candid note on the case-law field: Section 115BAE is very recent (AY 2024-25) and has effectively no dedicated reported case-law field yet; the live authorities are the established splitting-up/old-asset jurisprudence (eligibility) and the cognate Form 10-IC/10-ID condonation line (procedural option). The position is stated candidly; no decision has been invented under section 115BAE.
D. PRACTITIONER'S NOTE
Section 115BAE delivers the lowest rate to genuinely new manufacturing co-operatives on tight conditions. The eligibility windows (registration on/after 1 April 2023; commencement by the cut-off), the no-splitting/no-old-assets tests and the close-connection excess-profit safeguard are the substantive risks; Form 10-IFA timing is the procedural one. Document genuine newness and arm's-length pricing, file the form on time, and ring-fence the 15% income.
E. SOURCES & CITATIONS
Eligibility propositions are read with the settled 'splitting up/reconstruction' and 'old plant and machinery' jurisprudence under the erstwhile incentive sections; the procedural-option relief is read with the cognate Form 10-IC/10-ID condonation line (section 115BAA/115BAB files). No decision has been invented under this very recent provision.
Caveat: Treatise-style commentary for practitioners and academic use; not legal opinion. The registration/commencement windows and eligibility conditions are date- and fact-sensitive; verify the current statutory text, the prescribed forms and the latest CBDT/appellate position before relying on any proposition.
Function in the statutory architecture
Section 115BAE lets a resident co-operative society opt to pay tax at fifteen per cent for previous years relevant to assessment years beginning on or after 1 April 2024. The society must have been set up and registered on or after the 1st day of April, 2023 and must have commenced manufacture or production on or before the 31st day of March, 2024. Its business must not be formed by splitting up or reconstruction of an existing business, and it must not use machinery or plant previously used, subject to the twenty per cent tolerance and the imported-machinery exception. It must be engaged only in manufacture or production and related research or distribution. Generation of electricity counts as manufacture; software development, mining and certain other activities do not.
Income neither derived from nor incidental to manufacture, and with no specific rate in the Chapter, is taxed at twenty-two per cent without any deduction or allowance. Short-term capital gains on a capital asset on which no depreciation is allowable are taxed at twenty-two per cent. Income deemed under sub-section (4) is taxed at thirty per cent. The section is "Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024".
Operative consequences
Status
Section 115BAE is operative for AY 2026-27 for societies that met the commencement date of 31 March 2024. The Finance Act, 2026 does not amend it.
The 2025 counterpart is s. 204, with common conditions in s. 205. The Finance Act, 2026 inserted "or 150" in s. 204(3)(a)(i) and added sub-section (5), which allows the deduction under s. 149(2)(d)(ii) up to dividend distributed to members at least one month before the return due date.
The 1961 Act governs AY 2026-27 and earlier assessment years; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject the 2025 Act provision is s. 204.
Case Laws & Commentary
SECTION 115BAE — TAX ON INCOME OF CERTAIN NEW MANUFACTURING CO-OPERATIVE SOCIETIES
Case Laws & Commentary (Income-tax Act, 1961 as amended by Finance Act, 2026)
A. SECTION COMMENTARY
A.1 Structural position & legislative purpose
Section 115BAE, inserted by the Finance Act, 2023 with effect from assessment year 2024-25, is the co-operative-society counterpart of section 115BAB. It offers a new resident manufacturing co-operative society the option to be taxed at a concessional rate of fifteen per cent (effective rate 17.16% with surcharge of 10% and cess of 4%), to incentivise fresh manufacturing investment in the co-operative sector. The society must be set up and registered on or after 1 April 2023, commence manufacturing on or before 31 March 2024, be engaged in the manufacture or production of an article or thing (and incidental research/distribution), and must not be formed by splitting up or reconstruction of an existing business or by using previously-used plant and machinery (beyond the permitted limit). Specified incentive deductions are forgone, AMT (section 115JC) does not apply, and the option (Form 10-IFA, by the return due date for the first year) is irrevocable.
As in section 115BAB, an anti-abuse safeguard applies: where the business produces more than ordinary profits owing to a close connection or specified arrangement, the Assessing Officer may recompute the profits at arm's length and the excess is taxed at thirty per cent.
A.2 Sub-section / clause taxonomy
Sub-section (1): the 15% charge at the society's option, subject to the conditions; its provisos tax non-manufacturing income at twenty-two per cent without deductions, the deemed excess profit at thirty per cent and short-term capital gains on assets not eligible for depreciation at twenty-two per cent, and invalidate the option on failure of the conditions. Sub-section (2): eligibility - registration on or after 1 April 2023; commencement of manufacture by 31 March 2024; not formed by splitting up/reconstruction; no prohibited use of old plant/machinery; engaged only in manufacture/production; income computed without the specified incentive deductions. Sub-section (3): loss and depreciation attributable to those deductions deemed fully given effect to. Sub-section (4): the close-connection excess-profit recomputation (arm's length price for specified domestic transactions), the excess being deemed income. Sub-section (5): exercise of the option (Form 10-IFA) by the return due date, irrevocable.
A.3 Core doctrinal themes
Theme (1) - Lowest rate for genuinely new co-operative manufacturing: 15% mirrors section 115BAB, reserved for new manufacturers meeting the no-splitting/no-old-assets conditions and the registration/commencement windows.
Theme (2) - Arm's-length excess-profit safeguard: the close-connection excess is recomputed and taxed at 30%, importing a transfer-pricing-style anti-abuse rule into the co-operative concession.
Theme (3) - Procedural option and irrevocability: the Form 10-IFA filing by the return due date for the first year is the gateway and is irrevocable, mirroring the 115BAB/Form 10-ID discipline.
A.4 Legislative evolution / Finance Act amendment trail
Inserted by the Finance Act, 2023 (w.e.f. AY 2024-25), completing the co-operative concessional architecture (alongside section 115BAD at 22%). It closely tracks section 115BAB in structure, conditions and safeguards. The registration window (on or after 1 April 2023) and the commencement-of-manufacture cut-off (31 March 2024) are central eligibility facts.
Finance Act 2026: no amendment to section 115BAE. The optional 15% regime for new manufacturing co-operative societies continues for AY 2026-27 onward (subject to the registration/commencement windows already prescribed).
A.5 CA practitioner pointers
(1) Confirm registration on or after 1 April 2023 and commencement of manufacture by the statutory cut-off - these windows are narrow and decisive. (2) Test the no-splitting/no-old-assets conditions rigorously. (3) File Form 10-IFA by the return due date for the first opting year; the option is irrevocable. (4) Ring-fence manufacturing income (15%) from non-manufacturing income (22%) and capital gains. (5) Document arm's-length pricing for any close-connection transactions to forestall the 30% excess-profit recomputation.
B. FINANCE ACT, 2026 - IMPACT NOTE
Section 115BAE is NOT amended by the Finance Act, 2026. The optional 15% regime for new manufacturing co-operative societies, with its eligibility windows, the Form 10-IFA condition and the arm's-length excess-profit safeguard, continues for AY 2026-27 onward.
C. CASE LAW - CLUSTERED BY ISSUE
Cluster C-1 : Eligibility and the procedural option (cognate authorities)
The sub-section (2) eligibility safeguards and the Form 10-IFA timeliness condition (cognate to section 115BAB).
Principle: The 15% rate is confined to a genuinely new manufacturing co-operative meeting the registration/commencement windows and the no-splitting/no-old-assets conditions - read in light of the settled 'splitting up/reconstruction' and 'old plant and machinery' jurisprudence under the former incentive sections. The option is gated by a timely Form 10-IFA, delay in which is condonable on the analogy of the Form 10-IC/10-ID jurisprudence.
Relevance: Frames the eligibility and procedural risks; the practitioner applies the established incentive-section eligibility jurisprudence and the cognate condonation line, the section itself being too recent to have generated dedicated authority.
Candid note on the case-law field: Section 115BAE is very recent (AY 2024-25) and has effectively no dedicated reported case-law field yet; the live authorities are the established splitting-up/old-asset jurisprudence (eligibility) and the cognate Form 10-IC/10-ID condonation line (procedural option). The position is stated candidly; no decision has been invented under section 115BAE.
D. PRACTITIONER'S NOTE
Section 115BAE delivers the lowest rate to genuinely new manufacturing co-operatives on tight conditions. The eligibility windows (registration on/after 1 April 2023; commencement by the cut-off), the no-splitting/no-old-assets tests and the close-connection excess-profit safeguard are the substantive risks; Form 10-IFA timing is the procedural one. Document genuine newness and arm's-length pricing, file the form on time, and ring-fence the 15% income.
E. SOURCES & CITATIONS
Eligibility propositions are read with the settled 'splitting up/reconstruction' and 'old plant and machinery' jurisprudence under the erstwhile incentive sections; the procedural-option relief is read with the cognate Form 10-IC/10-ID condonation line (section 115BAA/115BAB files). No decision has been invented under this very recent provision.
Caveat: Treatise-style commentary for practitioners and academic use; not legal opinion. The registration/commencement windows and eligibility conditions are date- and fact-sensitive; verify the current statutory text, the prescribed forms and the latest CBDT/appellate position before relying on any proposition.