Section 115BAA: The 22% Concessional Tax Regime for Domestic Companies (AY 2026-27)

Section 115BAA is the largest corporate tax cut India has made in two decades. Introduced by the Taxation Laws (Amendment) Ordinance 2019 and effective from Assessment Year 2020-21, it lets any domestic company pay a flat 22% instead of the normal 30% or 25%, with no Minimum Alternate Tax.

The price is the incentive structure. Special economic zone profits, additional depreciation, weighted research deductions and the entire 80-IA family have to be given up, and the choice cannot be reversed. For a company sitting on a large MAT credit or a live Section 80-IA claim, opting in is a permanent and expensive mistake.

This guide covers eligibility, what exactly is forfeited, the Form 10-IC mechanics, the MAT credit trap, and the arithmetic that decides the question. For the wider rate landscape including Section 115BAB and the general regime, see our corporate income tax rates guide for FY 2026-27.

Looking for expert help with section 115BAA, 22 percent corporate tax rate India, Form 10-IC filing, domestic company concessional tax regime, MAT credit lapse 115BAA, 115BAA vs 115BAB? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.

What Section 115BAA Does

Section 115BAA(1) provides that where a domestic company exercises the option, its income tax is computed at 22% of total income, subject to the conditions in sub-section (2).

The surcharge deserves attention because most summaries get it backwards. Under Section 115BAA the surcharge is a flat 10% at every income level. Under the normal regime it is nil up to Rs 1 crore, 7% from Rs 1 crore to Rs 10 crore, and 12% above Rs 10 crore.

So for a company with total income below Rs 10 crore, the 115BAA surcharge is actually higher than the normal one. The base rate cut is what carries the saving, and where the normal base rate is already 25%, the surcharge partly eats it.

Who Can Opt In

There is no turnover, sector or vintage restriction. A newly incorporated private limited company with no revenue is as eligible as a listed conglomerate.

What You Give Up

Section 115BAA(2) requires total income to be computed without the following.

Deductions and Exemptions Forfeited

Deductions That Survive

Section 80JJAA surviving matters more than it looks. A company adding headcount gets 30% of the additional employee cost for three assessment years, and that deduction stacks on top of the 22% rate.

Loss and Depreciation Set-Off

Brought-forward loss and unabsorbed depreciation attributable to any of the forfeited deductions cannot be set off in the year of opting in or in any later year. That loss is extinguished, not deferred.

There is one adjustment in the company's favour. Where unabsorbed depreciation includes an additional depreciation component under Section 32(1)(iia), the proviso to Section 115BAA(3) requires the corresponding amount to be added to the written down value of the relevant block of assets as on 1 April of the first year of the option. It comes back as normal depreciation over the life of the block rather than disappearing outright.

MAT: The Credit Trap

CBDT Circular No. 29/2019 dated 2 October 2019 settled two points. First, MAT credit is not available to a company that opts for Section 115BAA, and there is no mechanism to carry it forward or refund it. Second, a company holding MAT credit or unabsorbed additional depreciation is free to defer the option to a later year, use up the credit under the normal regime first, and opt in once the balance is exhausted.

That second point is the practical answer for most companies with a credit balance. The option is available in any year; nothing forces you to exercise it now. Work out the MAT credit position under Section 115JB before you decide, because a credit balance of a few crore can outweigh several years of rate saving.

Form 10-IC: Exercising the Option

Filing the return and simply computing tax at 22% does not exercise the option. Form 10-IC is a separate filing, and its absence has produced a long line of demands where companies paid 22% and were assessed at 30%.

Steps on the E-Filing Portal

1. Log in at incometax.gov.in with the company PAN.
2. Go to e-File, then Income Tax Forms, then File Income Tax Forms.
3. Select Form 10-IC and the relevant assessment year.
4. Confirm the company details and the declaration that the conditions in Section 115BAA(2) are satisfied.
5. Submit and verify with the authorised signatory's digital signature or EVC.
6. Record the acknowledgement number for the return.

If You Missed the Deadline

Missing the due date means the option is not available for that assessment year. The company is assessed under the normal regime, MAT applies, and the return has to reflect that.

The option is not lost forever. You can exercise it for any later assessment year by filing Form 10-IC within that year's due date. Note the one exception in Section 115BAA(5): a company that opted for Section 115BAB and then failed its conditions may move to Section 115BAA, but a company that has validly opted into 115BAA cannot leave it.

For historical defaults, CBDT allowed relief. Circular No. 6/2022 dated 17 March 2022 condoned delayed Form 10-IC filing for AY 2020-21, and Circular No. 19/2023 dated 23 October 2023 did the same for AY 2021-22 and AY 2022-23, in each case where the return was filed on time, the 22% option was ticked in the return, and Form 10-IC was filed within the extended window. These were one-time reliefs for specific years and no such circular exists for AY 2026-27.

Section 115BAA Versus Section 115BAB

The Section 115BAB window shut on 31 March 2024. A company incorporated now cannot reach the 15% rate, which makes 115BAA the only concessional route for new domestic companies.

The Arithmetic: When 115BAA Actually Wins

The comparison every summary gets wrong is the base rate. The normal rate is 25% for a domestic company whose turnover in the prescribed earlier year did not exceed Rs 400 crore, and 30% otherwise. Most companies weighing this decision are on 25%, not 30%.

No Deductions, Turnover Under Rs 400 Crore

The gap is 0.83 percentage points below Rs 1 crore, where the normal regime carries no surcharge at all. It widens to 2.65 points once the 7% surcharge kicks in.

No Deductions, Turnover Above Rs 400 Crore

This is the six-percentage-point saving that gets quoted. It applies only to large companies on the 30% base rate.

Where 115BAA Loses

A company with Rs 10 crore of profit, turnover under Rs 400 crore, and a live Section 80-IA claim of Rs 3 crore:

At a 25% base rate the break-even is roughly Rs 33 of deductions per Rs 1,000 of profit. Anything above that and the normal regime wins, permanently, because the choice cannot be undone.

Decision Summary

Opt in when the company has no material 80-series or 10AA claim, no MAT credit balance, no additional depreciation pipeline, and profits are stable or rising.

Stay out when there is a large MAT credit to absorb, an active Section 80-IA, 80-IB, 80-IC or 80-IAC claim, a SEZ unit, heavy capital expenditure generating additional depreciation, or brought-forward losses tied to those deductions.

Defer when the arithmetic favours 115BAA eventually but a MAT credit or an unexpired 80-IAC holiday still has value. The option keeps.

Under the Income Tax Act 2025

The Income Tax Act 2025 takes effect from 1 April 2026 for Tax Year 2026-27. Section 115BAA of the 1961 Act corresponds to Section 200 of the 2025 Act, and Section 115BAB to Section 201. Returns filed in 2026 for FY 2025-26 remain governed by the 1961 Act, so Section 115BAA and Form 10-IC are the operative provisions for AY 2026-27. The rate, the conditions and the irrevocability carry over unchanged.

Common Mistakes

Paying 22% without filing Form 10-IC. The single most common failure. The computation in the return does not exercise the option, and the assessment comes back at the normal rate with MAT.

Comparing against 30% when the company is on 25%. This inflates the apparent saving by roughly five percentage points and has pushed companies into an irrevocable regime that costs them money.

Forgetting the MAT credit. A credit balance is a rupee-for-rupee future tax reduction. Opting in writes it off entirely.

Assuming the surcharge falls. For income between Rs 1 crore and Rs 10 crore the 115BAA surcharge of 10% is higher than the normal 7%.

Opting in during a Section 80-IAC holiday. A startup with an unexpired tax holiday is giving away a 100% deduction to save 0.83 percentage points.

Treating the option as annual. It is not. There is no exit.

Where Tax Garden Helps

Section 115BAA is a one-way door. The rate looks obviously better until the deductions, the MAT credit and the surcharge bands are put into the same computation.

Tax Garden's CAs help you:

• Compute liability under the normal regime, MAT and Section 115BAA on the same figures
• Value the MAT credit and unabsorbed additional depreciation you would forfeit
• Identify whether deferring the option by a year or two is worth more than opting in now
• File Form 10-IC before the Section 139(1) due date and carry it into ITR-6
• Restate the loss and depreciation schedules once the option is exercised
• Respond to assessments where the option was disputed

Looking for expert help with section 115BAA, 22 percent corporate tax rate India, Form 10-IC filing, domestic company concessional tax regime, MAT credit lapse 115BAA, 115BAA vs 115BAB? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.

Section 115BAA: Frequently Asked Questions

What is Section 115BAA?

Section 115BAA is an optional concessional tax regime that lets a domestic company pay income tax at a flat 22%, with a fixed 10% surcharge and 4% cess, giving an effective rate of 25.168%. In exchange the company forfeits most exemptions and incentive deductions.

Who can opt for Section 115BAA?

Any domestic company: private limited, public limited, listed, unlisted or a one person company. There is no turnover, sector or incorporation date restriction. Foreign companies, LLPs, firms and cooperative societies cannot opt.

What is the effective tax rate under Section 115BAA?

25.168%, being 22% base rate multiplied by 1.10 for the flat surcharge and 1.04 for health and education cess. The rate does not change with income level.

Is the Section 115BAA surcharge lower than the normal one?

Not always. Section 115BAA carries a flat 10% surcharge at every income level. The normal regime has no surcharge up to Rs 1 crore, 7% from Rs 1 crore to Rs 10 crore, and 12% above Rs 10 crore. Between Rs 1 crore and Rs 10 crore the 115BAA surcharge is higher.

Which deductions are lost under Section 115BAA?

Section 10AA, additional depreciation under 32(1)(iia), 32AD, 33AB, 33ABA, the Section 35 research deductions, 35AD, 35CCC, 35CCD, and all of Chapter VI-A other than 80JJAA, 80M and 80LA(2). Brought-forward loss and depreciation attributable to those deductions also cannot be set off.

Does MAT apply under Section 115BAA?

No. Section 115JB does not apply to a company that has opted for Section 115BAA, so no book profit computation is required. However, any MAT credit under Section 115JAA carried forward from earlier years lapses permanently.

Can I use my MAT credit before opting for Section 115BAA?

Yes. CBDT Circular 29/2019 confirms a company may defer the option to a later year, absorb its MAT credit and unabsorbed additional depreciation under the normal regime first, and exercise the option once the balance is exhausted.

How do I opt for Section 115BAA?

File Form 10-IC electronically on the e-filing portal under Rule 21AE, on or before the Section 139(1) due date for the relevant assessment year, verified by digital signature or EVC. Computing tax at 22% in the return without filing the form does not exercise the option.

Do I have to file Form 10-IC every year?

No. One validly filed Form 10-IC exercises the option for that assessment year and all subsequent years. The option cannot be withdrawn, so there is nothing to renew.

Can Section 115BAA be withdrawn once opted?

No. The option is irrevocable for that and every later assessment year. The only related movement permitted is that a company which opted for Section 115BAB and failed its conditions may fall back to Section 115BAA.

What happens if I miss the Form 10-IC deadline?

The option is unavailable for that assessment year and the company is assessed under the normal regime with MAT. It can be exercised for any later year by filing Form 10-IC within that year's due date. The condonation circulars for AY 2020-21 to AY 2022-23 do not extend to current years.

Is Section 80JJAA available under Section 115BAA?

Yes. Section 80JJAA, the deduction for additional employee cost, is expressly preserved, along with Section 80M for inter-corporate dividends and Section 80LA(2) for IFSC units.

Should a startup with a Section 80-IAC holiday opt for 115BAA?

Usually no. Section 80-IAC gives a 100% deduction of eligible profits for three of the first ten years, which is worth far more than the roughly 0.83 percentage point saving 115BAA offers a company already on the 25% base rate. Opting in forfeits the holiday irreversibly.

What is the difference between Section 115BAA and Section 115BAB?

Section 115BAA offers 22% to any domestic company. Section 115BAB offered 15% to new domestic manufacturing companies incorporated on or after 1 October 2019 that commenced manufacturing by 31 March 2024. That window has closed, so 115BAA is the only concessional regime open to a new company.

---

Sources: Income Tax Act 1961 Sections 115BAA, 115BAB, 115JB, 115JAA, 80JJAA, 80M, 80LA; Taxation Laws (Amendment) Ordinance 2019 and Taxation Laws (Amendment) Act 2019; Rule 21AE of the Income Tax Rules 1962; CBDT Circular No. 29/2019 dated 2 October 2019; CBDT Circular No. 6/2022 dated 17 March 2022; CBDT Circular No. 19/2023 dated 23 October 2023; Income Tax Act 2025 Sections 200 and 201; Income Tax Department (incometaxindia.gov.in). Illustrative computations assume no marginal relief and no state or sector specific levies. Verify current rates, surcharge bands and turnover thresholds on incometaxindia.gov.in before acting. This article is general information on Section 115BAA and not a substitute for professional advice.