Section 201: concessional 15% rate for new manufacturing domestic companies

Introduction

Section 201's 15% figure is not a rate for every receipt of an eligible company. Its table assigns different rates to specified non-manufacturing income, certain short-term capital gains and income deemed under Section 205(4).

Eligibility also depends on the setup and production dates, the income-computation restrictions and Section 205(2). The election has to be made in the prescribed manner by the first applicable return due date, and it cannot later be withdrawn.

Key takeaways

Current surcharge: distinguish a business-trust SPV

The statutory 15%, 22% and 30% figures in Section 201’s table are base income-tax rates for their respective categories. The Taxation and Other Laws (Amendment) Act, 2026 amended the Finance Act, 2026 surcharge tables with deemed effect from 1 April 2026.

A domestic company taxed under Section 200 or 201 that is a special purpose vehicle referred to in Schedule V, Note 2 falls under the amended 25% surcharge row. Other domestic companies under those sections fall under the 10% row. Surcharge is calculated on income-tax; it is not a percentage-point addition to the section’s base rate.

Verify the statutory SPV definition and applicable additional levies separately after classifying income under the Section 201 table. The amendment does not remove the eligibility or election conditions for this regime.

The rates that apply

At the company's option, its total income is taxed at the following rates instead of the normal computation:

Conditions to use this section

The company must:

• Exercise the option as described below;
• Have been set up and registered on or after 1 October 2019;
• Have commenced manufacturing or production of an article or thing on or before 31 March 2024;
• Compute its total income as described in sub-section (3); and
• Fulfil the conditions in sub-section (5) of this section and in section 205(2) (which restricts using previously-used plant/machinery or buildings, and confines the business to manufacturing).

Exercising the option, and what happens on default

The option must be exercised on or before the due date under section 263(1) for furnishing the first of the returns of income for any tax year; once exercised, it applies to subsequent tax years and cannot be withdrawn for that or any other year.

If the company fails to fulfil the sub-section (1) conditions in any tax year, the option becomes invalid for that year and all subsequent years, and the rest of the Act then applies as if the option had never been exercised for those years.

How total income is computed

For the purposes of sub-section (1), total income is computed without deduction under section 45(2) or 47(1)(b), without deduction under Chapter VIII (other than sections 146 or 148), and without deduction under the sections listed in section 205(1)(a) to (g); and without set-off of any loss or unabsorbed depreciation deemed so under section 116 that is attributable to those disallowed deductions.

A loss or depreciation that cannot be set off for this reason is deemed to have been given full effect to, so no further deduction is allowed for it in a later year.

Amalgamation

On amalgamation, the option under this section remains valid only for the amalgamated company, and only if that company continues to fulfil the sub-section (1)(d) conditions.

Official August 2026 amendment

• Taxation and Other Laws (Amendment) Act, 2026 — enacted Act 21 of 2026
• Income-tax Act, 2025 — Finance Act, 2026 consolidation (read with the August amendment)

Step-by-step flow for applying Section 201

1. 1

   Is the assessee a domestic company engaged in manufacture or production of an article or thing?

   • No: Section 201 is not available.
   • Yes: Go to the next step.
2. 2

   Was it set up and registered on or after 1 October 2019 and did it commence manufacture or production on or before 31 March 2024?

   • No: Section 201 is not available.
   • Yes: Go to the next step.
3. 3

   Does it meet the Section 205(2) conditions and compute income without the excluded deductions?

   No deduction under Section 45(2) or 47(1)(b), Chapter VIII other than Section 146 or 148, or the sections in Section 205(1)(a) to (g); no set-off of attributable loss or unabsorbed depreciation (Section 201(3)).

   • No: The option is not available, or becomes invalid for that year and later years (Section 201(2)(d)).
   • Yes: Go to the next step.
4. 4

   Has the option been exercised by the Section 263(1) due date for the first return?

   • No: The concessional rates do not apply.
   • Yes: Go to the next step.
5. 5

   Apply the rates in the Table

   15% on general income; 22% (without any deduction or allowance) on income neither derived from nor incidental to manufacturing that has no separate specific rate; 22% on short-term capital gains from a non-depreciable asset; 30% on income deemed under Section 205(4).

Practical checklist

Glossary

Commencement condition

Manufacture or production must have started on or before 31 March 2024 (Table, Sl. No. 1, column D, clause (c)).

Deemed income under Section 205(4)

Profits in excess of what the Assessing Officer determines as reasonable where dealings with a closely connected person inflate profits; taxed at 30% under the Table.

Amalgamation

On amalgamation the option remains valid only for the amalgamated company and only if it continues to meet the Table conditions (Section 201(5)).

Frequently asked questions