Tax on income of new manufacturing domestic companies
[Section-201 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 201(1) of Income Tax Act 2025
201(1) Irrespective of anything contained in this Act, but subject to the provisions of Parts A, B and this Part other than sections 199 and 200, 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 assessee, be computed at the rates specified in column C, if the conditions contained in column D thereof are fulfilled.
Table
| Assessee | Total income and rate of tax | Conditions |
|---|---|---|
| 1. A domestic company engaged in business of manufacture or production of any article or thing. | (a) 15% on the total income other than the income mentioned in clauses (b), (c) and (d); (b) 22% (without any deduction or allowance in respect of any expenditure or allowance) on such income,–– (i) which has neither been derived from nor is incidental to manufacturing or production of an article or thing; and (ii) in respect of which no specific rate of tax has been provided separately under this Part; (c) 22% on short-term capital gains derived from transfer of a capital asset on which no depreciation is allowable under this Act; (d) 30% on the income deemed so under section 205(4). | Such domestic company–– (a) exercises the option in the manner provided in sub-section (2); (b) has been set-up and registered on or after the 1st October, 2019; (c) has commenced manufacturing or production of an article or thing on or before the 31st March, 2024; (d) the total income of which is computed as per the provisions of sub-section (3); and (e) fulfils all the conditions provided in sub-section (5) of this section and section 205(2). |
Section 201(2) of Income Tax Act 2025
201(2) The option under this section shall be exercised by the assessee in the manner prescribed subject to the following conditions:––
- 201(2)(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;
- 201(2)(b) such option, once exercised, shall apply to subsequent tax years;
- 201(2)(c) once the option has been exercised for any tax year, it shall not be subsequently withdrawn for the same or any other tax year; and
- 201(2)(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.
Section 201(3) of Income Tax Act 2025
201(3) For the purposes of sub-section (1), the total income of the assessee shall be computed,—
- 201(3)(a) without any deduction under—
- 201(3)(b) without set off of any loss or allowance for unabsorbed depreciation deemed so under section 116(1), if such loss or depreciation is attributable to any of the deductions referred to in clause (a).
Section 201(4) of Income Tax Act 2025
201(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.
Section 201(5) of Income Tax Act 2025
201(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.
FAQs on Section 201 of Income Tax Act 2025
Who is eligible to opt for the concessional tax rates under section 201(1)?
A domestic company engaged in manufacturing or production of any article or thing is eligible if it was set up and registered on or after 1st October 2019 and commenced manufacturing on or before 31st March 2024, and fulfills all other prescribed conditions.
What are the tax rates applicable to a qualifying new manufacturing domestic company under this section?
The tax rates are:
(a) 15% on income from manufacturing or production activities,
(b) 22% on non-manufacturing income (not separately taxed),
(c) 22% on short-term capital gains from assets not eligible for depreciation,
(d) 30% on deemed income under section 205(4).
Is the concessional tax rate optional for the assessee?
Yes, the company has the option to choose this concessional tax regime under section 201.
How and when should the option be exercised by the company?
The option must be exercised in the prescribed manner on or before the due date for furnishing the first return of income under section 263(1) for any tax year.
Can the company withdraw the option once exercised?
No, once the option is exercised, it cannot be withdrawn for the same or any other tax year.
What happens if the company fails to meet the conditions in any tax year after opting?
The option becomes invalid for that tax year and all subsequent years. The regular provisions of the Act will apply as if the option was never exercised.
How is the total income computed under this section?
Total income is computed:
(a) Without deductions under sections 45(2)(c), 47(1)(b), Chapter VIII (except sections 146 and 148), and section 205(1)(a) to (g),
(b) Without setting off losses or unabsorbed depreciation attributable to such deductions.
Can the company carry forward and claim the losses and unabsorbed depreciation in future years?
No, such losses and unabsorbed depreciation are deemed to have been fully adjusted and cannot be claimed in subsequent years.
What are the implications in case of amalgamation involving such a company?
The option remains valid in the amalgamated company only if it continues to fulfill all the original conditions specified in the section.
Is there any restriction on the type of business activity under this concessional regime?
Yes, the company must be engaged in the business of manufacture or production of articles or things. Income not related to such activities is taxed at higher rates.
Are deductions or exemptions allowed under other provisions if this option is taken?
No, various deductions including those under Chapter VIII and section 205(1) are disallowed under this concessional regime.
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