Section 201 — New Manufacturing Domestic 15pc | ITA 2025

Section 201 — - NEW MANUFACTURING DOMESTIC COMPANY 15% REGIME

Section 201 is the substantive equivalent of 1961 s. 115BAB -- THE MOST AGGRESSIVE CORPORATE TAX INCENTIVE in Indian tax history. 15% rate (effective ~17.16% after 10% surcharge + 4% cess) for NEW MANUFACTURING DOMESTIC COMPANIES INCORPORATED ON OR AFTER 1-OCT-2019 AND COMMENCING MANUFACTURING ON OR BEFORE 31-MAR-2024 (sunset; FA 2024 / FA 2025 may have extended -- verify current notification). FA 2019 SEPTEMBER ANNOUNCEMENT triggered massive greenfield investment surge -- Foxconn / Tata-Apple / Vedanta semicon / Pegatron / Honda new-plants; Korean / Japanese / Taiwanese auto-component greenfield investments. Conditions extensively defined in s. 205 (negative list). Companies engaged in 'manufacture or production of any article or thing' or 'specified electricity business' qualify. Excluded: software / IT services / mining / book publishing / printing / similar non-manufacturing per s. 205(2)(a). NO MAT applicable. Practitioner-grade rule: Indian greenfield manufacturing pipeline post 2019 driven primarily by s. 201 economics.

Statutory text — Income-tax Act, 2025

Marginal note -- Tax on income of new manufacturing domestic companies

(1) Irrespective of anything contained in this Act, but subject to the provisions of Parts A, B, E and this Part (other than sections 199 and 200) of this Chapter, the income-tax payable in respect of the total income of an assessee, being a domestic company, specified in column B of the Table below, shall, at the option of such as- sessee, be computed at the rates specified in column C, if the conditions contained in column D thereof are fulfilled.

TABLE Sl. Assessee Total income and Conditions No. rate of tax

A B C D

1. A domestic (a) 15% on the total in- Such domestic company— company come other than the (a) exercises the option in engaged in income mentioned in the manner provided in business of clauses (b), (c) and sub-section (2); manufac- (d); ture or pro- (b) has been set-up and reg-

(b) 22% (without any istered on or after the 1st duction of deduction or allow- any article October, 2019; ance in respect of or thing. any expenditure or (c) has commenced manufac- allowance) on such turing or production of an income,— article or thing on or before

(i) which has nei- the 31st March, 2024; ther been de- (d) the total income of which rived from nor is computed as per the is incidental to provisions of sub-section manufacturing (3); and or production (e) fulfils all the conditions of an article or provided in sub-section (5) thing; and of this section and section

(ii) in respect of 205(2). which no spe- cific rate of tax has been

provided sep- arately under Parts A, B, E and this Part of this Chapter;

(c) 22% on short-term capital gains de- rived from transfer of a capital asset on which no depreci- ation is allowable under this Act;

(d) 30% on the income deemed so under section 205(4).

(2) The option under this section shall be exercised by the assessee in the manner prescribed subject to the following conditions:—

(a) it shall be exercised on or before the due date specified under section 263(1) for furnishing first of the returns of income for any tax year;

(b) such option, once exercised, shall apply to subsequent tax years;

(c) once the option has been exercised for any tax year, it shall not be sub- sequently withdrawn for the same or any other tax year; and

(d) where the assessee fails to fulfil the conditions contained in sub-section

(1) (Table: Sl. No. 1.D) in any tax year,—

(i) the option shall become invalid in respect of such tax year and subsequent tax years; and

(ii) the other provisions of this Act shall apply, as if the option had not been exercised for that tax year and subsequent tax years.

(3) For the purposes of sub-section (1), the total income of the assessee shall be computed,—

(a) without any deduction under—

(i) section 45(2) or 47(1)(b); or

(ii) Chapter VIII other than section 146 or 148; or

(iii) sections specified in section 205(1)(a) to (g);

(b) without set off of any loss or allowance for unabsorbed depreciation deemed so under section 116, if such loss or depreciation is attributable to any of the deductions referred to in clause (a).

(4) While computing the income of the assessee, the loss and depreciation, or both, as specified in sub-section (3)(b) shall be deemed to have been given full effect to and no further deduction for such loss or depreciation, or both, shall be allowed for any subsequent year.

(5) In case of an amalgamation, option under this section shall remain valid in case of the amalgamated company only and if the conditions contained in sub-section

(1) (Table: Sl. No. 1.D) are continued to be fulfilled by such company. New tax regime for individuals, Hindu undivided family and others.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 201	INCOME-TAX ACT, 1961 -- s. 115BAB
Sub-s. (1) -- 15% rate + condition list	1961 s. 115BAB(1)/(2)
Incorporated on / after 1-Oct-2019	1961 s. 115BAB(2)(a)
Commencement by 31-Mar-2024 (FA 2024 sunset)	1961 s. 115BAB(2) Proviso
Negative list per s. 205(2)(a) -- non-manufacturing exclusions	1961 s. 115BAB(2) read with conditions
20% old plant tolerance	1961 s. 115BAB(2)(b) Proviso
Mutual exclusion with s. 199 / 200	1961 s. 115BAB(7)
Form 10-ID option exercise / irrevocable	1961 s. 115BAB(7) read with Rule 21AE
No MAT under s. 206 (NEW provision exception)	1961 s. 115JB(5A) Proviso

STATUTORY ARCHITECTURE -- ELIGIBILITY

FOUR ELIGIBILITY GATEWAYS: (I) DOMESTIC COMPANY -- incorporated under Companies Act 2013 (or pre-2013 incorporation). Excludes: foreign companies / public sector undertakings (specific carve-out for some PSU formats). (II) INCORPORATION ON OR AFTER 1-OCT-2019 -- the watershed cut-off date. Pre-1-Oct-2019 incorporated companies: NOT eligible (use s. 200 22% instead). (III) MANUFACTURING-COMMENCEMENT ON OR BEFORE 31-MAR-2024 -- the sunset. FA 2024 may have extended; verify CBDT notification. Manufacturing-commencement = first commercial production / dispatch / sale (not test-runs). (IV) ELIGIBLE BUSINESS: (a) Manufacture or production of any article or thing; OR (b) Specified business of GENERATION OF ELECTRICITY (CG-notified). MANUFACTURING NEGATIVE LIST (s. 205(2)(a)): (i) software development (computer software); (ii) mining; (iii) printing of books / production of cinematograph films; (iv) book publishing; (v) marble quarrying / cutting / polishing; (vi) any other CG-notified non-manufacturing activity.

OPERATIONAL CONDITIONS (s. 205)

PLANT AND MACHINERY (P&M): (a) NOT PREVIOUSLY USED (other than 20% TOLERANCE -- max 20% of total P&M may be second-hand / previously-used / imported pre-owned); (b) Imported P&M may be old subject to 20% test. BUILDING: NOT previously used as hotel / convention centre. BUSINESS SCOPE: (a) Engaged ONLY in manufacturing (limited carve-outs for ancillary services); (b) NO splitting / reconstruction of existing business; (c) NO transfer of business / undertaking from existing entity (anti-shifting). TRANSFER PRICING: AE-transactions at arm's length per s. 161-166. CONSEQUENCE OF FAILURE: option becomes invalid for that tax year and SUBSEQUENT YEARS; company falls back to s. 199 default + applicable MAT. May then opt for s. 200 (22%) cure pathway under s. 200(7).

RATE STRUCTURE AND MAT

RATE: 15% on profits attributable to manufacturing OR specified electricity business. PLUS surcharge: 10% (irrespective of income level for s. 201 opt-in companies; capped); PLUS health & education cess: 4% on aggregate. EFFECTIVE RATE: ~17.16%. Compared to default s. 199 30% (effective ~25-30% post-deductions) -- a 8-15 percentage-point saving annually -- substantial. MAT NON-APPLICABILITY: s. 206 (1961 s. 115JB) MAT does NOT apply to s. 201 opt-in companies. Trade-off: forfeit accumulated MAT credit (which is rarely an issue for new entities). TRANSACTIONS WITH AE NOT AT ARM'S LENGTH: special anti-abuse provision -- AO may apply Section 161-166 TP-style adjustments; profits artificially inflated through related-party-non-arm's-length pricing may be recomputed.

CASE LAW / PRACTICAL IMPLEMENTATION

(i) FA 2019 Memorandum -- legislative intent (greenfield investment incentive). (ii) FA 2020 Reforms -- COVID-related deferral and extension considerations. (iii) FA 2023 / FA 2024 Memoranda -- sunset extension considerations. (iv) CBDT Circular 29/2019 -- option-exercise procedure. (v) Commercial cases: Foxconn India / Tata Electronics / iPhone manufacturing -- post-2020 commercial activation; mostly s. 201 opt-in. (vi) Vedanta semicon / Foxconn-Vedanta JV -- s. 201 alignment. (vii) Auto-component greenfield (Hyundai / Honda / Maruti new plants) -- many under s. 201.

PLANNING NOTES (NINE AREAS)

(i) SUNSET TIMELINE -- 31-Mar-2024 manufacturing-commencement deadline; FA 2024 / 2025 extension verification critical for pipeline projects. (ii) FORM 10-ID -- option-exercise before s. 263 due date for first year; irrevocable. (iii) NEGATIVE-LIST DUE DILIGENCE -- review business activities against s. 205(2)(a) excluded list; software-as-Service (SaaS) / book publishing / printing / mining ineligible. (iv) 20% OLD-PLANT TEST -- maximum 20% of total P&M may be used / second-hand. Document EQUIPMENT-by-EQUIPMENT new vs used split. (v) NO BUSINESS-SPLITTING -- new entity must NOT be reconstruction of existing business; group restructuring carefully reviewed; NCLT scheme-of-arrangement not allowed for s. 201 opt-in entity. (vi) AE TRANSACTIONS -- TP scrutiny under ss. 161-166; arms-length pricing mandatory; Form 3CEB documentation. (vii) MAT CREDIT TRADE-OFF -- s. 201 opt-in foregoes MAT credit; usually not material for new entities. (viii) ELECTRICITY GENERATION INCLUSION -- specified electricity business covered; document CG notification eligibility. (ix) DOCUMENTATION CHECKLIST -- (a) incorporation certificate post-1-Oct-2019; (b) commercial production commencement certificate; (c) industry-classification certificate; (d) P&M new vs used schedule; (e) Form 10-ID option exercise; (f) Form 3CEB TP documentation; (g) board-resolution evidence; (h) state-incentive layer documentation.

CROSS-REFERENCES

Section 199 -- Default 25%/30% (alternative).
Section 200 -- 22% concessional (alternative; cure pathway under s. 200(7) if s. 201 invalidated).
Section 205 -- Specified deductions / negative list (s. 205(2)(a)-(g)).
Section 206 -- MAT (NOT applicable for s. 201).
Section 161-166 -- TP regime (AE-transactions arm's length).
Section 263 -- Option-exercise window.
Form 10-ID -- option-exercise form.
Form 3CEB -- TP documentation.
CBDT Circular 29/2019 -- option-exercise procedure.
Companies Act 2013 -- incorporation framework.

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