Tax Rate of 15% for New Manufacturing Cooperative Societies: Finance Bill 2023

Finance Bill 2023 proposes to extend the concessional tax regime of 15% to new manufacturing co-operative societies that begin manufacturing operations before March 31, 2024, on par with new manufacturing companies. To effect the above amendments, clauses 45, 51, and 52 of the Finance Bill 2023 propose to insert a new section 115BAE and a new clause (vb) in section 92BA.

In the Income Tax Act, a new section 115BAE is being added to provide for a reduced income tax rate (15%) for new manufacturing cooperatives. As a result, a new cooperative society formed or registered on or after April 1, 2023, that begins manufacturing or production on or before March 31, 2024, would be allowed to pay tax at a concessional rate of 15%, subject to not taking advantage of specified incentives or deductions for additional depreciation, contributions for scientific research, investment-linked tax deductions, and deductions under Section 10AA or Chapter VI-A (except Section 80JJAA). This will ensure a level playing field for new manufacturing cooperative societies and new manufacturing companies.

Tax Rate of 15% for New Manufacturing Cooperative Societies: Finance Bill 2023

1. New Section 115BAB added to the Income Tax Act (via the Taxation Laws (Amendment) Act, 2019) provides that new manufacturing domestic companies established on or after 01/10/2019 and beginning manufacturing or production no later than 31/03/2023 may pay tax at a concessional rate of 15%, provided they do not take advantage of any specified incentive or deduction. Furthermore, the Finance Act of 2022 extended the deadline for starting manufacturing or production from 31 March 2023 to 31 March 2024. However, no such extension provision exists for new manufacturing co-operative societies.

2. As a result, in order to provide a level playing field at par with new manufacturing companies, concessional tax rate of 15% is proposed to be extended for new manufacturing co-operative societies as well.

3. It is proposed to insert a new section 115BAE into the Income Tax Act to provide a concessional tax regime for new manufacturing cooperative societies as well, subject to certain conditions that are essentially the same as the conditions applicable to new manufacturing companies.

4. It is also proposed that any machinery or plant used outside India by any other person not be considered machinery or plant previously used for any purpose, if certain specified conditions are met.

5. It is also proposed that if the assessee uses any previously used machinery or plant or any part thereof for any purpose, and the total value of such machinery or plant or part thereof does not exceed 20% of the total value of the machinery or plant used by the assessee, the concessional rate will apply if the specified conditions are met.

6. It is proposed that the assessee refrain from engaging in any business other than the manufacture or production of any article or thing, as well as research related to or distribution of such article or thing manufactured or produced by it.

7. It is also proposed that the business of manufacturing or producing any article or thing include the business of electricity generation, but exclude certain specified businesses.

8. It is also proposed to include a new clause (vb) in section 92BA of the Income Tax Act to include the transaction between the Cooperative society and another person with a close connection within the purview of’specified domestic transaction’.

9. These amendments are proposed to go into effect on April 1, 2024, and will thus apply to the assessment years 2024-25 and onwards.

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