From 1 April 2026 the Income-tax Act, 2025 governs company taxation. The rates themselves carry over from the 1961 Act: Section 115BAA is now Section 200, Section 115BAB is Section 201, and Minimum Alternate Tax (Sections 115JB and 115JAA) is Section 206. The Finance Act 2026 changed MAT for Tax Year 2026-27, which is covered below.
Corporate Tax Rates at a Glance (FY 2026-27)
| Regime | Base rate | Surcharge | Effective rate (with 4% cess) |
|---|---|---|---|
| Section 115BAA / Section 200 (domestic company, no specified deductions) | 22% | Flat 10% | 25.168% |
| Section 115BAB / Section 201 (new manufacturing company) | 15% | Flat 10% | 17.16% |
| Normal regime, turnover in base year up to Rs 400 crore | 25% | Nil up to Rs 1 crore, 7% above Rs 1 crore, 12% above Rs 10 crore | 26% / 27.82% / 29.12% |
| Normal regime, other domestic companies | 30% | Same as above | 31.2% / 33.384% / 34.944% |
| Foreign company (normal income) | 35% | Nil up to Rs 1 crore, 2% above Rs 1 crore, 5% above Rs 10 crore | 36.4% / 37.128% / 38.22% |
Marginal relief applies where income only just crosses a surcharge threshold.
Section 115BAA (Section 200): The 22% Regime
What it is: a domestic company can opt to pay tax at 22%, with a flat 10% surcharge at every income level and 4% cess, for an effective 25.168%.
The trade-off: the company gives up specified exemptions and deductions, including the SEZ deduction (Section 10AA), additional depreciation, investment-linked deductions under Section 35AD, the scientific research deductions under Section 35, and Chapter VI-A deductions other than Sections 80JJAA and 80M (for example 80-IA, 80-IAC, 80-IB).
Other features:
- MAT does not apply to a company in this regime.
- The option is exercised in Form 10-IC by the due date of the return and, once exercised, cannot be withdrawn for that or any later year.
Example (profit Rs 50 lakh):
| Item | Amount |
|---|---|
| Tax at 22% | Rs 11,00,000 |
| Surcharge at 10% | Rs 1,10,000 |
| Cess at 4% | Rs 48,400 |
| Total tax | Rs 12,58,400 (25.168%) |
For the Form 10-IC mechanics, the MAT credit question and the break-even arithmetic, see our Section 115BAA guide for AY 2026-27.
Section 115BAB (Section 201): The 15% Regime for New Manufacturers
What it is: a 15% rate, with a flat 10% surcharge and 4% cess (effective 17.16%), for new domestic manufacturing companies.
Conditions:
- Set up and registered on or after 1 October 2019.
- Engaged only in manufacture or production of an article or thing (and related research or distribution), not formed by splitting up or reconstructing an existing business, and not using previously used plant and machinery beyond the permitted limit.
- Commenced manufacturing on or before 31 March 2024. This date has not been extended, so a company that started production later cannot use this regime.
Example (profit Rs 50 lakh):
| Item | Amount |
|---|---|
| Tax at 15% | Rs 7,50,000 |
| Surcharge at 10% | Rs 75,000 |
| Cess at 4% | Rs 33,000 |
| Total tax | Rs 8,58,000 (17.16%) |
That is Rs 4,00,400 less than the same profit under Section 115BAA.
The Normal Regime: 25% or 30%
A domestic company that does not opt for Section 115BAA or 115BAB pays 25% if its total turnover or gross receipts in the base year specified in that year's Finance Act did not exceed Rs 400 crore, and 30% otherwise. For FY 2025-26 the base year is FY 2023-24; confirm the base year for Tax Year 2026-27 in the Finance Act 2026 before applying the 25% rate. Surcharge is nil up to Rs 1 crore of income, 7% above Rs 1 crore and 12% above Rs 10 crore, and 4% cess applies on top.
This regime keeps the deductions that Section 115BAA takes away, such as Section 10AA for SEZ units, 80-IA for infrastructure and 80-IAC for eligible startups, so it can still suit a company with large deductions.
Minimum Alternate Tax (MAT)
- FY 2025-26 (AY 2026-27), 1961 Act: MAT under Section 115JB is 15% of book profit (plus surcharge and cess) where it exceeds normal tax, and the excess is available as MAT credit for 15 years under Section 115JAA.
- Tax Year 2026-27 onwards, Section 206 as amended by the Finance Act 2026: the MAT rate is cut to 14% of book profit, MAT paid under the old (normal) regime becomes a final tax with no new MAT credit, and brought-forward MAT credit can be set off only by a domestic company that moves to the new regime (Section 200), limited to 25% of its tax liability for the year.
MAT does not apply to companies under Section 115BAA or 115BAB.
Worked Comparison: Rs 2 Crore Profit
| Regime | Tax | Surcharge | Cess | Total | Effective rate |
|---|---|---|---|---|---|
| Section 115BAA | Rs 44,00,000 | Rs 4,40,000 (10%) | Rs 1,93,600 | Rs 50,33,600 | 25.168% |
| Section 115BAB (if eligible) | Rs 30,00,000 | Rs 3,00,000 (10%) | Rs 1,32,000 | Rs 34,32,000 | 17.16% |
| Normal regime at 25% | Rs 50,00,000 | Rs 3,50,000 (7%) | Rs 2,14,000 | Rs 55,64,000 | 27.82% |
| Normal regime at 30% | Rs 60,00,000 | Rs 4,20,000 (7%) | Rs 2,56,800 | Rs 66,76,800 | 33.384% |
For a company with no large deductions, Section 115BAA beats the normal regime at both 25% and 30%. The normal regime can win only where deductions such as Section 10AA or 80-IAC reduce taxable income enough to offset the higher rate, which has to be worked out company by company.
How to Choose
- Eligible new manufacturer that started production by 31 March 2024? Section 115BAB gives the lowest rate.
- Large deductions or exemptions still available (SEZ, 80-IA, 80-IAC)? Compare the normal regime, including MAT, with Section 115BAA over the remaining years of the deduction.
- Otherwise: Section 115BAA is usually cheaper, and from Tax Year 2026-27 it is also the only route to use old MAT credit.
The Section 115BAA choice is permanent once made, so model several years before filing Form 10-IC.
Foreign Companies
A foreign company pays 35% on income taxed at normal rates (reduced from 40% by the Finance (No. 2) Act 2024 from FY 2024-25), with surcharge of 2% above Rs 1 crore and 5% above Rs 10 crore, and 4% cess. Specific income such as royalties, fees for technical services or interest may be taxed at lower rates under the Act or a tax treaty. Foreign companies cannot opt for Section 115BAA or 115BAB and file ITR-6.
Sources
This guide is based on Sections 115BAA, 115BAB, 115JB and 115JAA of the Income-tax Act, 1961; Sections 200, 201 and 206 of the Income-tax Act, 2025; the Finance (No. 2) Act 2024 (foreign company rate); and the Finance Bill 2026 memorandum (MAT at 14%, final tax in the old regime, credit set-off capped at 25% of tax liability in the new regime), available on indiabudget.gov.in.
