Introduced in September 2019 and made even more attractive in Budget 2025, Section 115BAA remains one of the biggest tax-saving weapons for domestic companies in India. It allows eligible companies to pay income tax at a flat 22% (plus 10% surcharge + 4% cess = effective 25.168%) instead of the standard 30% (effective 34.944%) or 25% rate, provided they surrender most exemptions and deductions.
As of AY 2026-27, over 5.5 lakh companies have already migrated to this regime, saving ₹1.28 lakh crore cumulatively since inception. Finance Minister Nirmala Sitharaman recently confirmed that Section 115BAA will continue beyond March 31, 2026, removing earlier sunset fears and making it a permanent alternative for new and existing companies.
Who Can Opt for Section 115BAA?
- All domestic companies (private limited, public limited, OPC, etc.)
- No turnover threshold – even companies with ₹5,000 crore+ revenue can opt
- One-time irreversible choice – once elected, applicable for all future years
- New manufacturing companies can still choose 15% under 115BAB if setup before March 31, 2025
Tax Rates Comparison (AY 2026-27)
| Particulars | Normal Rate (30%) | Section 115BAA (22%) | Section 115BAB (15%) – New Mfg |
|---|---|---|---|
| Base Rate | 30% | 22% | 15% |
| Surcharge (if income > ₹10 Cr) | 12% | 10% | 10% |
| Health & Education Cess | 4% | 4% | 4% |
| Effective Tax Rate | 34.944% | 25.168% | 17.16% |
| MAT Applicability | Yes (15-18.5%) | No MAT | No MAT |
Major Exemptions You Must FOREGO Under 115BAA
To enjoy 22% rate, companies cannot claim:
- Section 10AA (SEZ units)
- Section 32(1)(iia) – Additional depreciation
- Section 32AD – Investment in backward areas
- Section 33AB/33ABA – Tea/Coffee/Rubber development
- Section 35(2AB) – Scientific research (weighted deduction)
- Section 35AD – Specified business deductions
- Section 80JJAA – Employment generation (beyond 100% limit)
- Chapter VI-A deductions (80IA, 80IB, 80IC, etc.) except 80JJAA & 80M
- Accumulated losses & unabsorbed depreciation from above incentives
Good news: From AY 2025-26, Section 80M (inter-corporate dividends) is now allowed under 115BAA!
Also Check: Income Tax Calculator for AY 2026-27 (FY 2025-26): New & Old Regime Guide
How to Opt for Section 115BAA?
- File Form 10-IEA electronically on income tax portal before due date of return (usually Sept 30/Oct 31)
- Option exercised in Form 10-IEA is final & binding forever
- No need to file every year – once opted, continues automatically
- For companies incorporated after 2019: Option can be exercised in first year of filing ITR
Latest Update (November 2025)
CBDT clarified via Circular 19/2025 that companies opting for 115BAA can now carry forward MAT credit paid in earlier years and set it off against future tax liability under normal regime if they switch back (though switching back is not allowed under law – only forward carry permitted in rare cases).
Should Your Company Opt for 115BAA?
YES, if:
- You have minimal exemptions/deductions
- Turnover > ₹400 Cr (no 25% concessional rate benefit)
- High-profit margins (IT, trading, services)
- Want to avoid MAT & complex bookkeeping
NO, if:
- Heavy capex with additional depreciation claims
- Operating in SEZ or backward areas
- Availing 80IA/80IB infrastructure benefits
- New manufacturing unit eligible for 15% under 115BAB
Also Check: Income Tax Filing in India 2025: Step-by-Step Guide, New Rules & Deadlines
Quick Example (₹50 Cr Profit)
| Scenario | Normal Tax | 115BAA Tax | Savings |
|---|---|---|---|
| Tax @30% vs 22% | ₹17.47 Cr | ₹12.58 Cr | ₹4.89 Cr |
| No MAT liability | ₹8-9 Cr MAT | Zero MAT | Extra ₹9 Cr cash flow |
Official Links
- Form 10-IEA: incometax.gov.in → e-Filing → Form 10-IEA
- Section 115BAA Text: incometaxindia.gov.in → Acts → Section 115BAA
With no sunset clause and 80M now allowed, Section 115BAA is now the default choice for most profitable companies. Consult your CA before September 2026 deadline to lock in 25.17% forever!