TaxTMI 
TaxTMI 
Concessional Taxation for Manufacturing Domestic Companies : Clause 199 of Income Tax Bill, 2025 Vs. Section 115BA of Income-tax Act, 1961
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.... following commentary provides an in-depth analysis of Clause 199, its objectives, operative mechanics, and its comparative positioning vis-`a-vis the existing statutory and procedural framework. The analysis also highlights the practical and legal implications for stakeholders, while identifying areas of continuity, change, and potential ambiguity. Objective and Purpose The legislative intent behind Clause 199 is to further the government's agenda of promoting domestic manufacturing by offering a concessional corporate tax rate, subject to strict eligibility criteria. This approach is grounded in the recognition that manufacturing is pivotal to economic growth, employment generation, and technological advancement. The provision is al....
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.... * No Deduction: The total income must be computed without any deduction under: * Sections 45(2)(c) and 47(1)(b) * Chapter VIII-C, except section 146 * Sections specified in section 205(1)(a) to (g) * No Set-off of Certain Losses: No set-off of any loss carried forward from earlier years if such loss is attributable to any of the above deductions. 2. Losses and Set-off (Clause 199(2)) Clause 199(2) stipulates that losses attributable to the prohibited deductions, and carried forward from earlier years, are deemed to have been given full effect to, and no further deduction for such loss is allowed in any subsequent year. This is a legislative deeming fiction to prevent double benefit from losses linked to disallowed deductions. 3....
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....ching to section 115BAA. 2. Rule 21AD: Procedural Mechanism Rule 21AD operationalizes the exercise of option u/s 115BA(4). The rule prescribes: * Option to be exercised in Form No. 10-IB. * Filing to be done electronically, with digital signature or electronic verification code. * Principal DGIT(Systems) to specify the procedure, data standards, and security policies. 3. Comparative Table: Clause 199 vs Section 115BA and Rule 21AD Feature Clause 199 of the Income Tax Bill, 2025 Section 115BA of the Income-tax Act, 1961 Rule 21AD of the Income-tax Rules, 1962 Applicability Domestic companies set up on/after 1 Mar 2016 Domestic companies set up on/after 1 Mar 2016 Applies to exercise of option under 115BA(4) Busines....
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.... shift may reflect a legislative intent to streamline or update the list of disallowed deductions, or to align with a new structure of the Income Tax Bill, 2025. However, the lack of direct correspondence between the two lists may create interpretational challenges, especially if the new regime omits or reclassifies certain incentives previously covered u/s 115BA. 2. Procedural Requirements: Option Exercise Both Clause 199 and Section 115BA require the company to exercise the option in a prescribed manner, by the due date for the first return. However, Clause 199 refers to the due date u/s 263(1), while Section 115BA refers to section 139(1). This change may be due to renumbering or restructuring of procedural provisions in the 2025 Bill....
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.... but with strict eligibility and compliance requirements. Companies must carefully evaluate whether they meet the exclusive manufacturing criterion, and must forgo a range of deductions and incentives. The regime is most attractive for companies that do not intend to avail of sectoral or investment-linked deductions, or who value certainty and simplicity in tax computation. 2. Compliance and Procedural Aspects The requirement to exercise the option electronically, within the prescribed time frame, and in the prescribed form (likely to be similar to Form 10-IB u/r 21AD), places a premium on timely and accurate compliance. Failure to exercise the option correctly may result in loss of eligibility for the concessional regime. 3. Transition....
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....Features and Policy Rationale The new regime's focus on exclusive manufacturing activity, and its insistence on the irrevocability of the option, reflect a policy to target genuine new manufacturing investment, while preventing misuse by companies seeking to arbitrage between different regimes. The requirement to forgo a range of deductions underscores the government's shift towards lower rates with a broader base, rather than high rates with multiple carve-outs. The procedural rigor, including electronic filing and verification, is consistent with the government's push towards digital tax administration and enhanced compliance monitoring. Conclusion Clause 199 of the Income Tax Bill, 2025, represents a continuation and refi....