Section 115BAA of the Income Tax Act Explained for Companies in 2026
Last updated: 22 October 2026
Quick Answer: Section 115BAA is an optional regime under the Income-tax Act, 1961 that taxes a domestic company at 22%, or 25.168% after surcharge and cess. An opting company gives up specified deductions, pays no minimum alternate tax and cannot reverse its Form 10-IC choice. From tax year 2026-27 it is section 200 of the Income-tax Act, 2025.
115BAA is the concessional corporate tax option, often called the new tax regime for companies, that the Taxation Laws (Amendment) Ordinance, 2019 inserted into the Income-tax Act, 1961 with effect from 1 April 2020. It trades a lower, flat rate for a cleaner computation, so it suits companies whose deductions are worth less than the rate cut.
Timing matters in 2026: FY 2025-26 is the last year under the 1961 Act, and the MAT credit rules change after it.
What is the 115BAA tax rate for tax year 2026-27 under section 200?
Section 200 of the Income-tax Act, 2025, the successor to section 115BAA, taxes a domestic company at 22% for tax year 2026-27 (FY 2026-27), plus a flat 10% surcharge and 4% cess. That puts the effective 115BAA tax rate at 25.168% at every income level. FY 2025-26 carries the same 22% under the 1961 Act.
| Regime (FY 2025-26 and tax year 2026-27) | Taxable income up to ₹1 crore | ₹1 crore to ₹10 crore | Above ₹10 crore |
|---|---|---|---|
| Section 115BAA at 22% (section 200 from tax year 2026-27) | 25.168% | 25.168% | 25.168% |
| Regular regime at 25%, turnover up to ₹400 crore in the base year | 26.000% | 27.820% | 29.120% |
| Regular regime at 30%, any other domestic company | 31.200% | 33.384% | 34.944% |
Each row is the effective corporate tax rate in India, before marginal relief. For the 25% rate, the base year is FY 2023-24 turnover for FY 2025-26, and tax year 2024-25 turnover for tax year 2026-27.
For a smaller company the gap is narrow: up to ₹1 crore of income, a 25% company pays 26%, only 0.832 points more. Above ₹10 crore, a 30% company saves almost 10 points.
What does section 115BAA become under the Income-tax Act, 2025?
Section 115BAA becomes section 200 of the Income-tax Act, 2025, titled "Tax on income of certain domestic companies", in Chapter XIII. It keeps the 22% rate, the forgone deductions and the rule that the option cannot be withdrawn. It applies from tax year 2026-27, which began on 1 April 2026.
Under the new Income-tax Act, 2025, 115BAA becomes section 200, and companies that opted before 1 April 2026 do not start again. Section 536(2)(f) of the Income-tax Act, 2025 deems an option exercised under the 1961 Act, and in force immediately before 1 April 2026, to be exercised under the corresponding provision of the new Act. Sections 146 and 148 are the new homes of the additional employee cost deduction and the inter-corporate dividend deduction.
| Point | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Provision | Section 115BAA | Section 200 |
| Period | FY 2019-20 to FY 2025-26 | Tax year 2026-27 onwards |
| Rate and surcharge | 22% plus 10% | 22% plus 10% |
| Option deadline | Due date under section 139(1) | Due date under section 263(1) |
| Option form | Form 10-IC | In the return itself (rule 136, Income-tax Rules, 2026) |
| Deductions kept | Sections 80JJAA and 80M | Sections 146 and 148 |
| Withdrawal | Not allowed (section 115BAA(5)) | Not allowed (section 200(6)) |
Section 115BAA applicability: which companies can opt?
Section 115BAA of the Income-tax Act, 1961 applies to any domestic company, private or public, with no turnover cap and no incorporation-date condition. Under section 2(22A), a domestic company is an Indian company, or a company that has made the prescribed arrangements to declare and pay dividends in India.
Limited liability partnerships are not companies, so they cannot opt.
Even a company whose section 115BAB option (the 15% manufacturing regime) became invalid for breach of certain conditions may opt for the 22% rate. Section 200(7) repeats this route for section 201, its 2025 Act counterpart.
Which deductions does a company give up under section 115BAA?
Under section 115BAA of the Income-tax Act, 1961, a company gives up the area-based and investment-linked deductions listed in sub-section (2). These include additional depreciation and every Chapter VI-A deduction except sections 80JJAA and 80M. Normal depreciation stays available.
Losses and unabsorbed depreciation that arose from these deductions cannot be set off, and the law treats them as fully used. From tax year 2026-27, section 200(1) of the Income-tax Act, 2025 carries the same exclusions under that Act's own section numbers.
| Deduction forgone | What it covers |
|---|---|
| Section 10AA | Profits of a unit in a special economic zone |
| Section 32(1)(iia) | Additional depreciation on new plant and machinery |
| Section 32AD | Investment in new plant in notified backward areas |
| Sections 33AB and 33ABA | Tea, coffee and rubber; petroleum and natural gas |
| Section 35(1)(ii), (iia), (iii) and 35(2AA) | Payments for scientific, social science or statistical research |
| Section 35(2AB) | Approved in-house research and development |
| Sections 35AD, 35CCC and 35CCD | Specified businesses, agricultural extension and skill development projects |
| Chapter VI-A, every section except 80JJAA and 80M (and 80LA for an IFSC unit, section 115BAA(4)) | Incentives such as sections 80-IA, 80-IAB, 80-IAC and 80-IB, and payment-linked deductions such as section 80G donations |
How does section 115BAA treat MAT and MAT credit?
Minimum alternate tax does not apply to a company in the 22% regime under either Act. Credit is the catch. Under the 1961 Act, opting forfeits MAT credit already earned, while the 2025 Act lets a section 200 company use that credit within a 25% annual cap.
CBDT Circular No. 29/2019, dated 2 October 2019, says MAT credit is not available once a company opts, and that a company may first use its credit against regular tax and opt later. That route runs only up to FY 2025-26. Section 206(3) of the Income-tax Act, 2025, as amended by the Finance Act, 2026, changes that for tax year 2026-27 onwards.
Any domestic company that exercises the section 200 option can set off section 115JAA credit carried forward on 31 March 2026, up to 25% of its tax payable each year, within the credit's 15-year life.
A company that stays in the regular regime has no route to set off that credit from tax year 2026-27, so FY 2025-26 is the last year it can be used against regular tax. In the regular regime, section 206(1) as amended by the Finance Act, 2026 sets MAT at 14% of book profit and creates no new credit.
How do you opt for section 115BAA, and when is Form 10-IC due?
Companies opt by filing Form 10-IC on the e-filing portal on or before the return due date under section 139(1) for the first year they want the 22% rate. From tax year 2026-27, rule 136 of the Income-tax Rules, 2026 places the section 200 option in the return itself. For FY 2025-26, CBDT Circular No. 07/2026 moved that due date for companies from 31 October 2026 to 21 November 2026. A company that furnishes a transfer pricing report under section 92E of the Income-tax Act, 1961 keeps 30 November 2026.
- Model tax under both regimes for at least three years; from tax year 2026-27, count old MAT credit only on the section 200 (or 201) side.
- Remove every forgone deduction from that year's computation.
- For FY 2025-26, file Form 10-IC by the due date that applies; from tax year 2026-27, exercise the option in the return.
- File the return at 22% plus 10% surcharge and 4% cess, and keep the acknowledgement.
What happens after is permanent. Once made, the option binds every later year, and a later claim of a forgone deduction invalidates it from that year under the proviso to section 115BAA(1) and section 200(2).
Whether a tax audit applies does not depend on the regime; it turns on turnover and the cash mix, as the guide to tax audit applicability under section 44AB of the Income-tax Act, 1961 explains.
Section 115BAA vs old regime: how should a Bengaluru private limited company decide?
A private limited company in Bengaluru should opt for section 115BAA when the tax saved by the lower rate exceeds the tax value of the deductions given up, measured over several years. Because the option cannot be reversed, corporate tax planning starts with a multi-year projection.
Bengaluru matters because of what its companies tend to claim. Startups with a section 80-IAC deduction and units in special economic zones lose those claims at 22%. A hiring company keeps section 80JJAA, and research spending stays deductible under section 35(1)(i) and (iv) of the Income-tax Act, 1961.
Decision table: six questions before choosing the 22% regime
| Decision question | If the answer is yes | Rule |
|---|---|---|
| Does the company claim section 80-IAC or section 10AA this year? | Compare that deduction with the rate saving first; both are lost | Section 115BAA(2), 1961 Act; section 200(1), 2025 Act |
| Does it carry unabsorbed additional depreciation from earlier years? | Set off unabsorbed additional depreciation first, then opt | CBDT Circular No. 29/2019 (1961 Act) |
| Does it hold MAT credit under section 115JAA? | Opting for FY 2025-26 forfeits it; from tax year 2026-27 only a section 200 or 201 company can set it off, up to 25% of tax a year, and the regular regime allows none | Circular No. 29/2019; section 206(3), 2025 Act |
| Is income up to ₹1 crore and turnover within ₹400 crore? | The saving is 0.832 points; deductions often outweigh it | Rate tables |
| Does it claim section 80JJAA or section 80M? | Both stay available | Section 115BAA(2), 1961 Act; sections 146 and 148 through section 200(1), 2025 Act |
| Could future incentives matter to the business plan? | Weigh them now; the option cannot be withdrawn | Section 115BAA(5); section 200(6) |
Worked example: a ₹5 crore company in the 25% bracket
Take an illustrative company in the 25% bracket with taxable income of ₹5 crore. Regular tax with 7% surcharge and cess is ₹1.391 crore; at 22% it is ₹1.2584 crore, a saving of ₹13.26 lakh. Forgone deductions above about ₹47.7 lakh would wipe that out.
Common Mistakes in Choosing Section 115BAA
The costliest mistake is opting for FY 2025-26 under the Income-tax Act, 1961 while the company still carries MAT credit, because the credit lapses. From tax year 2026-27 the position reverses: opting under section 200 or 201 is the only way to use that credit.
Filing Form 10-IC late leaves the company on regular rates for that year. A later trap: a Bengaluru software company opts, then claims section 80-IAC (1961 Act) after obtaining its Inter-Ministerial Board certificate, which invalidates the option (an illustrative case).
How does a company get the section 115BAA decision done?
Getting it right needs a multi-year tax projection, clean books and a filing calendar; a finance team can run it in-house or have a tax advisory team prepare the comparison and file the option.
Inputs are audited accounts, three years of tax computations, the MAT credit and loss schedules, and the incentive plan. Reliable accounting and bookkeeping makes the projection credible, and a virtual CFO advisory team can hold the forecast that tests the decision each year.
HSAG Consulting, which has an office in Richmond Town, Bengaluru, lists strategic tax planning and income tax return filing among its direct tax services. HSAG Consulting's guide on how a virtual CFO supports business growth covers the forecasting side.
Want a Second Opinion on Your Company's Tax Regime?
Request a regime comparison through the contact page, and keep your last three tax computations and MAT credit schedule ready for the first conversation.
