Section 201 of the Income-tax Act, 2025 — 15% Tax on Income of New Manufacturing Domestic Companies

In plain language

What Section 201 is all about

Section 201 of the Income-tax Act, 2025 gives a special, optional 15% corporate tax rate to new domestic manufacturing companies. It carries forward, almost word for word, the hugely popular Section 115BAB of the Income-tax Act, 1961, which was introduced in September 2019 to attract fresh manufacturing investment into India. With a flat 10% surcharge and 4% health and education cess, the effective tax rate works out to just 17.16% — one of the lowest corporate tax rates in the world. The trade-off: the company must give up almost all exemptions, deductions and tax holidays, and the option, once exercised, is irrevocable.

Who can opt for Section 201

• Only domestic companies — LLPs, partnership firms and foreign companies cannot use this section (new manufacturing co-operative societies have a parallel regime in Section 204).
• Set up and registered on or after 1 October 2019 — the incorporation date is a hard cut-off.
• Commenced manufacturing or production of an article or thing on or before 31 March 2024 — this sunset date was not extended, so only companies that actually started production by that date qualify. No further extension has been notified as of the date of writing; companies incorporated later must instead look at the 22% regime under Section 200.
• Engaged in manufacturing/production (including research in relation to, or distribution of, the article manufactured by it) — the conditions in Section 205 exclude activities such as development of computer software, mining, conversion of marble blocks into slabs, bottling of gas into cylinders, printing of books and production of cinematograph films.

Key conditions under Section 205 (read with Section 201)

• No splitting up or reconstruction: the business must not be formed by splitting up or reconstructing an existing business (except a revival covered by Section 140(4)).
• Fresh plant and machinery: the company must not use previously-used plant or machinery, except (a) imported second-hand machinery never used in India, and (b) old domestic machinery up to 20% of the total value of plant and machinery used.
• Building restriction: it must not use a building previously used as a hotel or convention centre for which the erstwhile Section 80-ID deduction was claimed.

The rate structure — not everything is taxed at 15%

• 15% on income derived from manufacturing or production.
• 22% on incidental non-manufacturing income (e.g., interest), computed without any deductions.
• 22% on short-term capital gains from assets on which no depreciation is allowable (e.g., land).
• 30% on deemed excess profits under Section 205(4) — where dealings with closely connected persons produce more-than-ordinary profits, the excess is taxed at 30% and such transactions are treated as specified domestic transactions subject to arm's-length pricing.

What the company gives up

• No Chapter VIII deductions (the 2025 Act's equivalent of Chapter VI-A), except the deduction for new employment (successor to Section 80JJAA) — Sections 146 and 148 remain available.
• No SEZ-type deductions, accelerated/additional depreciation or investment-linked incentives listed in Section 205(1).
• No set-off of brought-forward losses or unabsorbed depreciation attributable to the disallowed deductions — they lapse permanently.

How the option works and interaction with other provisions

The option must be exercised on or before the due date under Section 263(1) for filing the first return for which the company claims the benefit (Form 10-ID served this purpose under the 1961 Act; expect the equivalent form under the 2025 rules). Once exercised it applies to all later tax years and cannot be withdrawn. If any condition is breached in a later year, the option becomes invalid for that and subsequent years, and the company typically falls back to Section 200 (22% regime). A big practical sweetener: Minimum Alternate Tax (MAT) does not apply to companies taxed under Section 201, so book profits are irrelevant. On amalgamation, the option survives only in the hands of the amalgamated company and only if all conditions continue to be satisfied.

Practical implications

For an eligible manufacturer, Section 201 usually beats every other regime: 17.16% effective versus 25.168% under Section 200 or up to ~34.94% under normal rates. But run the numbers before opting — a company with large accumulated incentive-linked losses or substantial non-manufacturing income may find the irrevocable lock-in costly. Also remember dividend distributions are taxed in shareholders' hands; the low corporate rate does not change that.