Most domestic companies in India still pay 30% corporate tax. They don't have to.
Since September 2019, the government has offered an option — pay just 22% base tax instead, which works out to an effective rate of 25.17% after surcharge and cess. That's Section 115BAA. And for many companies, the savings are significant.
But this isn't a free lunch. You give up certain deductions to get that lower rate. And once you opt in, you're locked in permanently.
Here's the full picture — what it covers, who qualifies, what you lose, and how to decide if it's the right call for your company.
Section 115BAA was introduced through the Taxation Laws (Amendment) Act, 2019, effective from FY 2019-20 (AY 2020-21). It sits in the Income Tax Act, 1961 — and under the newly enacted Income Tax Act, 2025, its equivalent provision is Section 200.
The section gives domestic companies an option to move out of the standard 30% tax slab and instead pay tax at a flat 22% — provided they meet certain conditions. Factor in the 10% surcharge and 4% health and education cess, and the all-in effective rate comes to 25.17%.
At the same time, the Minimum Alternate Tax (MAT) rate was cut from 18.5% to 15% as part of the same reform. Companies opting for Section 115BAA, however, don't pay MAT at all.
The intent wasn't just about cutting numbers. The government was trying to make Indian corporate taxation more competitive globally — and to pull in fresh investment by reducing the tax burden on operating businesses.
Feature
Details
Who can use it
Any domestic company — new or existing, any turnover size
Base tax rate
22% flat, regardless of income level
Surcharge
Fixed at 10% (flat, not income-based)
Cess
4% health and education cess
Effective tax rate
25.17%
MAT liability
None — companies opting for 115BAA are fully exempt from MAT
Old MAT credits
Cannot be used once you switch
Decision reversibility
Permanent — once opted, cannot be withdrawn
Form required
Form 10-IC, filed electronically (digital signature or EVC)
Deadline to opt
On or before the ITR filing due date — typically 30th September of the relevant assessment year
Foreign companies eligible?
No — only domestic companies
LLPs / Partnership firms eligible?
No
Any domestic company incorporated in India can opt for Section 115BAA. There's no turnover cap, no age requirement on the company — an existing company that has operated for decades can switch to this regime just as easily as a newly incorporated one.
What matters isn't the size or age of the company. What matters is what you're willing to give up.
This is the part most people skim over. It shouldn't be.
To pay tax at 22% under Section 115BAA, a company must compute its total income without claiming the following:
1. SEZ Deduction (Section 10AA) No deduction for units operating in Special Economic Zones.
2. Additional Depreciation (Section 32(1)(iia)) Manufacturing companies in certain sectors can normally claim extra depreciation over the standard rate. That goes away under 115BAA. Normal depreciation under Section 32 can still be claimed — just not the additional component.
3. Investment Allowance (Section 32AD) The allowance for new plant and machinery installed in notified backward areas of Andhra Pradesh, Bihar, Telangana, and West Bengal — not available.
4. Tea, Coffee and Rubber Deduction (Section 33AB) Not available for companies in those specific agricultural processing businesses.
5. Petroleum Site Restoration Fund Deduction (Section 33ABA) Deductions for deposits made into site restoration funds by oil and gas companies — gone.
6. Scientific Research Deductions (Section 35) Expenditure on scientific research, or amounts paid to universities, research associations, National Laboratories, or IITs — cannot be deducted.
7. Specified Business Capital Expenditure (Section 35AD) No deduction for capital expenditure incurred by specified businesses.
8. Agriculture Extension and Skill Development Projects (Sections 35CCC, 35CCD) Expenditure on these projects — not deductible.
9. Chapter VI-A Deductions (80IA, 80IAB, 80IAC, 80IB, etc.) Most deductions available to infrastructure undertakings, SEZ developers, eligible startups, and industrial undertakings are off the table.
Two exceptions that remain allowed:
10. Carried Forward Losses from the Above Deductions If a company had accumulated losses or unabsorbed depreciation that arose specifically because of the deductions listed above, those cannot be set off in the year of switching or in any future year.
This last point is worth reading twice. If you're carrying forward losses linked to any of those deductions, switching to 115BAA means permanently losing the ability to use them.
For AY 2026-27, here's how Section 115BAA stacks up against the regular tax rates:
Total Income
Effective Rate Under 115BAA
Effective Rate Under Normal Regime
Below ₹1 Crore
26.00%
₹1 Crore to ₹10 Crore
27.82%
Above ₹10 Crore
29.12%
Notice something: the higher a company's income, the bigger the savings under 115BAA. For a company earning above ₹10 crore, the gap is nearly 4 percentage points — that's real money.
The surcharge under 115BAA is also much simpler — a flat 10% always, regardless of income. Under the normal regime, surcharge varies: 7% for income between ₹1–10 crore, jumping to 12% for income above ₹10 crore.
Regime
Rate (Excluding Surcharge & Cess)
Who It Applies To
Section 115BAA (New IT Act: Section 200)
22%
All domestic companies (no deduction claims)
Section 115BA (New IT Act: Section 199)
25%
Domestic manufacturing companies set up before March 2016
Section 115BAB (New IT Act: Section 201)
15%
New domestic manufacturing companies
Turnover below ₹400 crore
Standard slab companies below threshold
Standard rate
30%
All other domestic companies
This came up in a recent ruling — Maharishi Education Corporation (P.) Ltd. vs. ITO [ITA No. 2639/DEL/2025] — before the Delhi Bench of the Income Tax Appellate Tribunal.
The question was whether a company under 115BAA still gets the special 20% rate on Long-Term Capital Gains under Section 112, or whether all income gets taxed at 22%.
The ITAT ruled that once a company opts for 115BAA, the 22% flat rate applies to total income in its entirety — including LTCG. The special rate provisions don't override 115BAA. This is worth keeping in mind if your company has significant capital gains.
Once you opt for Section 115BAA, there is no going back. Ever.
The only companies that can defer the switch are those currently in a tax holiday period — they can wait until exemptions expire and then opt in. But once the switch is made, it's locked in for all subsequent assessment years, regardless of how the financial situation changes.
This is why the decision deserves more thought than just comparing tax rates.
1. What deductions are you currently using? Run the numbers on what you'd actually give up — additional depreciation, SEZ deductions, 80IA/80IB benefits. If those deductions push your effective rate below 25.17% anyway, the switch may not save you money.
2. Are you sitting on carried-forward losses? If those losses trace back to the deductions listed above, they vanish the moment you switch. Quantify that before deciding.
3. What does your income look like going forward? If your company is growing and expects stable profits with no major deduction claims on the horizon, 115BAA makes strong sense. If your company is expecting significant future deductions from infrastructure investments or scientific research, think carefully.
4. The MAT question Under 115BAA, you pay zero MAT. But all previously accumulated MAT credit becomes unusable too. If you have large MAT credit sitting on the books, opting in means writing that off entirely.
To formally choose this regime, a company must file Form 10-IC, notified by CBDT and available on the Income Tax portal.
Under the Income Tax Act, 2025, Form 10-IC is referenced under Rule 21AE, with Section 115BAA now mapped to Section 200 of the new Act.
If you're working with documentation under the new Income Tax Act, 2025, here's the mapping:
Income Tax Act, 1961
Income Tax Act, 2025
Purpose
Section 115BAA
Section 200
22% concessional tax for domestic companies
Section 115BA
Section 199
25% tax for certain manufacturing companies
Section 115BAB
Section 201
15% tax for new manufacturing companies
Section 115JB
Section 206
Minimum Alternate Tax (MAT)
Section 10AA
Section 144
SEZ unit deduction
Section 32
Section 33
Depreciation
Section 35
Section 45
Scientific research deductions
Section 35AD
Section 46
Deduction for specified businesses
Section 80IA
Section 138
Infrastructure undertaking deduction
Section 80IAB
Section 139
SEZ developer deduction
Section 80IAC
Section 140
Eligible start-up deduction
Section 80IB
Section 141
Industrial undertaking deduction
Section 80JJAA
Section 146
Employment generation deduction
Section 80M
Section 148
Inter-corporate dividend deduction
A: Any domestic company — new or existing, regardless of turnover or age — can opt for Section 115BAA. There is no restriction on when it was incorporated or how large it is. Even a company that has operated for 20 years can switch to the 22% concessional rate at any point.
A: The effective tax rate comes to 25.17%, calculated as 22% base tax plus a flat 10% surcharge on that tax, plus 4% health and education cess on the combined tax and surcharge. This rate stays fixed regardless of the level of income — unlike the normal regime where the surcharge escalates with income.
A: Yes. Under the newly enacted Income Tax Act, 2025, Section 115BAA of the 1961 Act has been mapped to Section 200. The core provision — 22% tax rate for domestic companies giving up certain exemptions — remains unchanged.
A: No. Companies that opt for the concessional tax regime under Section 115BAA are fully exempt from Minimum Alternate Tax. However, any MAT credit accumulated in earlier years becomes unusable once the company switches to 115BAA — it cannot be adjusted against future tax liabilities.
A: As per the Delhi ITAT ruling in Maharishi Education Corporation (P.) Ltd. vs. ITO [ITA No. 2639/DEL/2025], LTCG is also taxed at the flat 22% rate under Section 115BAA — not at the special 20% rate under Section 112. The 115BAA rate applies to total income in its entirety.
A: No. Once a company formally opts for Section 115BAA by filing Form 10-IC, the decision is permanent and cannot be reversed in any subsequent year. Companies that are currently in a tax holiday period can delay opting in — but once they do, there is no exit.
A: No. Section 115BAA is strictly for domestic companies incorporated in India. LLPs, partnership firms, and foreign companies are not eligible, regardless of their income or tax situation.
A: The option must be exercised on or before the due date for filing the income tax return for that assessment year — which is generally 30th September of the relevant assessment year. Filing Form 10-IC after this deadline means the option cannot be exercised for that particular year.
A: Yes. Normal depreciation under Section 32 of the Income Tax Act, 1961 (Section 33 under the 2025 Act) can still be claimed. What's disallowed is the additional depreciation — the extra percentage allowed to certain manufacturing entities over and above normal depreciation rates.
A: No. Form 10-IC needs to be filed only once. Once you have exercised the option, it automatically applies to all subsequent assessment years. There is no need for annual re-filing.
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