Section 115BAE: 15% tax rate for new manufacturing co-operative societies

If you run or advise a co-operative society that makes something, you may have heard of a 15% tax rate. It is real, but it is narrow. It is meant only for a manufacturing co-operative that was set up recently, and the window to qualify has a hard end date. This article walks through who fits, what the law asks of you, and what happens if you slip.

Everything below is taken from the text of the Income-tax Act, 1961, the Finance Act, 2023 that inserted the section, the Finance Act, 2026, and the Income-tax Act, 2025. The 1961 Act governs assessment year (AY) 2026-27 and earlier years. The 2025 Act applies from tax year 2026-27.

The short version

Section 115BAE of the Income-tax Act, 1961 lets a resident co-operative society pay income-tax at 15% on its total income, at its option, for AY 2024-25 onwards, if it meets the conditions in sub-section (2) (s.115BAE(1), Income-tax Act, 1961). The 15% applies to income from manufacturing or production. Other income is taxed differently, and some of it at higher rates (explained below).

The catch is the cut-off. The society must have been set up and registered on or after 1 April 2023 and must have commenced manufacturing or production on or before 31 March 2024 (s.115BAE(2)(a), Income-tax Act, 1961).

Has the 31 March 2024 date been extended?

The section was inserted by the Finance Act, 2023 (section 54, with effect from 1 April 2024). We reviewed the Finance Acts of 2024, 2025 and 2026 and the Income-tax Act, 2025 for any amendment to this cut-off. The Finance Acts of 2024, 2025 and 2026 mention section 115BAE only in surcharge, advance tax and similar cross-reference provisions. We found no amendment of the date, and the Income-tax Act, 2025 repeats the same dates: set up and registered on or after 1 April 2023, and commenced manufacturing or production on or before 31 March 2024 (s.204(1), Table, Income-tax Act, 2025).

So in practice, a co-operative that began manufacturing after 31 March 2024 cannot use this section. The rate is for societies already inside the window. If the position of a particular society is borderline, such as a registration date close to 1 April 2023, get it checked before relying on it.

Who the 15% rate is for

Section 115BAE(1) speaks of an "assessee, being a co-operative society resident in India". Three things must be true together:

• Timing. Set up and registered on or after 1 April 2023, and manufacturing or production commenced on or before 31 March 2024 (s.115BAE(2)(a), Income-tax Act, 1961).
• A fresh business. The business is not formed by splitting up, or reconstructing, a business already in existence (s.115BAE(2)(a)(i)).
• New plant and machinery, broadly. The society does not use machinery or plant previously used for any purpose (s.115BAE(2)(a)(ii)). Two relaxations are written into the section.

What kind of business qualifies

The society must not be engaged in any business other than manufacture or production of an article or thing, and research in relation to, or distribution of, what it manufactures or produces (s.115BAE(2)(b), Income-tax Act, 1961).

The Explanation to that clause settles some doubtful cases. Manufacture or production includes generation of electricity. It does not include:

• development of computer software in any form or media;
• mining;
• conversion of marble blocks or similar items into slabs;
• bottling of gas into cylinders;
• printing of books or production of cinematograph film; or
• any other business the Central Government notifies.

A society that also runs, say, a trading or service side line, falls outside clause (b). That is the point where most real-life questions arise, so look at the actual activities in the books, not just the objects in the bye-laws.

How the income is computed

The rate comes with a trade-off. Total income must be computed under s.115BAE(2)(c) as follows (Income-tax Act, 1961):

• without any deduction under section 10AA, section 32(1)(iia), section 33AB, section 33ABA, section 35 (the listed sub-sections), section 35AD, section 35CCC, or any provision of Chapter VI-A, other than section 80JJAA;
• without set-off of any loss carried forward, or depreciation, from an earlier year, if that loss or depreciation is attributable to those deductions; and
• by claiming depreciation under section 32, other than the additional depreciation in section 32(1)(iia), determined in the prescribed manner.

Such brought-forward loss or depreciation is deemed to have been given full effect and no further deduction is allowed for it in any later year (s.115BAE(3)). Before opting in, compare the 15% against what the society would pay with its deductions and carried-forward losses intact.

The rate, and what is taxed at higher rates

Within the Finance Act, 2023 text of section 115BAE(1):

The sub-section (4) rule works like this. If, owing to a close connection between the society and another person, or for any other reason, business between them is arranged to produce more than the ordinary profits, the Assessing Officer can compute profits as reasonably deemed. The excess over that figure is deemed income of the society, taxed at 30% (s.115BAE(4) and second proviso to s.115BAE(1)). Where the arrangement involves a specified domestic transaction under section 92BA, arm's length price applies (first proviso to s.115BAE(4); section 92BA(vb), inserted by the Finance Act, 2023).

Surcharge and cess for AY 2026-27

For AY 2026-27 (the assessment year commencing on 1 April 2026), the Finance Act, 2026 sets surcharge at "Ten per cent." for "Every co-operative society resident in India" taxed under section 115BAD or 115BAE (surcharge Table, Sl. No. 12, section 2, Finance Act, 2026). The same Act adds Health and Education Cess at 4% of the income-tax and surcharge (section 2(6), Finance Act, 2026).

This is the AY 2026-27 position only. For other years, read the surcharge table in the Finance Act for that year; this article does not state them.

Minimum alternate tax and AMT

A society that has exercised the option under section 115BAE(5) is outside the minimum alternate tax in section 115JC. The Finance Act, 2023 substituted section 115JC(5) and section 115JD(7) so that these provisions "shall not apply" to a person who has exercised that option (sections 57 and 58, Finance Act, 2023).

How and when to exercise the option

Section 115BAE does not apply unless the option is exercised in the prescribed manner on or before the due date under section 139(1) for furnishing the first return of income for a previous year relevant to AY 2024-25 or later. Once exercised it applies to later years, and it cannot be withdrawn for the same or any other previous year (s.115BAE(5) and its proviso, Income-tax Act, 1961).

On the income tax portal, the option is exercised by filing Form 10-IFA (rule 21AHA), which only a resident co-operative society can file. The portal's own guidance says e-verification is mandatory through DSC or EVC, the signatory details must be updated in the profile, and the registration date entered must fall on or after 1 April 2023 and on or before 31 March 2024. It also warns that the benefit may be denied if the form is filed late, and that once filed it cannot be withdrawn.

Do not file the form just to see what happens. A valid filing is permanent.

What happens if you fail a condition later

If the society fails the sub-section (2) conditions in any previous year, the option becomes invalid for the assessment year of that previous year and for all later years. The other provisions of the Act then apply as though the option had never been exercised for those years (fourth proviso to s.115BAE(1)).

The ordinary example is a society that starts a non-manufacturing line of business after opting in. Clause (b) is then breached, and the rate is lost for that year and every year after it.

The Income-tax Act, 2025 counterpart (tax year 2026-27 onwards)

The official 1961-to-2025 section mapping links section 115BAE of the 1961 Act to sections 204 and 205 of the Income-tax Act, 2025. Section 204 contains the rate table and eligibility conditions. Section 205 holds the shared conditions (no splitting up of an existing business, limits on previously used machinery, no business beyond manufacture, production, research and distribution) and the meaning of manufacture or production.

Points to note on the 2025 Act:

• The rates in section 204(1), Table are 15%, 22% (for the non-manufacturing income and the short-term capital gains described above) and 30% (income deemed under section 205(4)).
• The option under section 204(2) must be exercised by the due date in section 263(1), applies to later tax years, and once exercised cannot be withdrawn (s.204(2)(a) to (c), Income-tax Act, 2025).
• Failure of the conditions in any tax year invalidates the option for that year and later years (s.204(2)(d)).
• The Finance Act, 2026 (section 58) inserted a new sub-section (5) in section 204. For a co-operative society that has exercised the option, the the deduction under section 149(2) of the 2025 Act that the sub-section refers to is available only to the extent it does not exceed the dividend distributed to members at least one month before the section 263(1) due date. Read this with section 149 itself before you rely on it.

For a first return for tax year 2026-27 filed under the 2025 Act, check the prescribed form and manner for exercising the option on the portal.

Common mistakes

• Treating the section as open to any new co-operative. Both the registration date and the manufacturing start date are fixed, and neither has been extended in the Acts we checked.
• Looking only at the headline 15% and ignoring the 22% and 30% slices.
• Opting in and then keeping a brought-forward loss alive that was tied to a listed deduction. Section 115BAE(3) deems it already used.
• Adding a non-manufacturing business after opting in.
• Assuming the option can be withdrawn later. It cannot.

What to do now

• Next step: list the society's registration date, the date it commenced manufacturing, and every business activity it carries on. Compare them with s.115BAE(2)(a) and (b), Income-tax Act, 1961.
• Deadline: the option must be exercised on or before the section 139(1) due date for the first return in which you claim it (s.115BAE(5), Income-tax Act, 1961); under the 2025 Act the reference is section 263(1) (s.204(2)(a), Income-tax Act, 2025).
• Consequence: a missed deadline means the section does not apply; a breached condition ends the option for that year and every later year (fourth proviso to s.115BAE(1); s.204(2)(d), Income-tax Act, 2025).

Have a CA review your facts before you act or file.

FAQs

Can a co-operative society that started manufacturing in April 2024 use section 115BAE?
No. The condition is that manufacturing or production commenced on or before 31 March 2024 (s.115BAE(2)(a), Income-tax Act, 1961; s.204(1), Table, Income-tax Act, 2025).

Is the 15% rate automatic?
No. It is available only at the option of the society, exercised in the prescribed manner by the due date (s.115BAE(1) and (5), Income-tax Act, 1961).

Can we go back to the normal rates after opting in?
No. The proviso to section 115BAE(5) says an option once exercised cannot be withdrawn for the same or any other previous year. The 2025 Act repeats this (s.204(2)(c)).

Does the 15% rate cover all of the society's income?
No. Income not derived from or incidental to manufacturing or production, in the cases described in the first proviso, is taxed at 22% without deduction for expenses. Short-term capital gains on non-depreciable assets are also at 22%, and profits deemed under sub-section (4) are at 30% (s.115BAE(1), provisos).

What is the surcharge for AY 2026-27?
Ten per cent for a resident co-operative society under section 115BAD or 115BAE, plus 4% Health and Education Cess (surcharge Table Sl. No. 12 and section 2(6), Finance Act, 2026).

Does a society that opts in pay minimum alternate tax?
No. Section 115JC(5) provides that the section does not apply to a person who has exercised the section 115BAE(5) option (Finance Act, 2023, section 57).

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