Every private limited company in India has a one-time choice to make: pay tax at the normal corporate rate, or opt for the concessional 22% rate under Section 115BAA of the Income-tax Act, 1961 – now Section 200 of the Income-tax Act, 2025. The option is irrevocable, so it is worth getting right. This guide compares both for FY 2025-26 (AY 2026-27), with worked examples.
Who can opt for Section 115BAA?
Any domestic company – new or old, of any size – can opt, provided it gives up certain deductions and incentives (listed below). There is no turnover limit and no restriction on the date of incorporation. A private limited company registered in Bihar is a domestic company and is therefore eligible.
Tax rates compared (FY 2025-26)
| Taxable income | Normal rate – turnover up to ₹400 crore* | Normal rate – turnover above ₹400 crore* | Section 115BAA |
|---|---|---|---|
| Up to ₹1 crore | 26.00% | 31.20% | 25.168% |
| ₹1 crore – ₹10 crore | 27.82% | 33.384% | 25.168% |
| Above ₹10 crore | 29.12% | 34.944% | 25.168% |
| MAT (15% of book profit) | Applies | Does not apply | |
*Turnover or gross receipts of FY 2023-24. Effective rates include surcharge (7% above ₹1 crore, 12% above ₹10 crore under the normal regime; flat 10% under 115BAA) and 4% health & education cess. Marginal relief is ignored.
Worked examples
Example 1: Small company with ₹20 lakh profit
- Normal rate (25% + 4% cess = 26%): ₹5,20,000
- Section 115BAA (25.168%): ₹5,03,360
- Saving with 115BAA: ₹16,640 a year
Example 2: Growing company with ₹5 crore profit
- Normal rate (25% + 7% surcharge + 4% cess = 27.82%): ₹1,39,10,000
- Section 115BAA (25.168%): ₹1,25,84,000
- Saving with 115BAA: ₹13,26,000 a year
The saving grows with profit because the surcharge under 115BAA is a flat 10%, while the normal regime’s surcharge rises to 12%. And because MAT does not apply under 115BAA, companies with low taxable income but high book profit can save even more.
What you give up under Section 115BAA
To use the 22% rate, total income must be computed without these deductions (1961 Act references):
- Section 10AA – SEZ unit deduction
- Section 32(1)(iia) – additional depreciation, and Section 32AD
- Sections 33AB and 33ABA – tea / coffee / rubber and site restoration deposits
- Sections 35(1)(ii), (iia), (iii) and 35(2AA), 35(2AB) – scientific research deductions
- Section 35AD – investment-linked deduction for specified businesses
- Sections 35CCC and 35CCD – agricultural extension and skill development
- Chapter VI-A deductions (such as 80-IAC for startups and 80-IA) – except 80JJAA (new employment) and 80M (inter-corporate dividends)
Also, brought-forward losses and unabsorbed depreciation that relate to these deductions cannot be set off, and any accumulated MAT credit is lost.
When 115BAA usually makes sense
- A new company with no special incentives – most service, trading and consultancy companies
- Companies with profit above ₹1 crore, where the surcharge gap widens
- Companies paying MAT under the normal regime
- Companies with no large MAT credit or incentive-linked losses carried forward
When the normal rate may be better
- A DPIIT-recognised startup claiming the 80-IAC tax holiday
- Units in an SEZ claiming Section 10AA
- Companies with a large accumulated MAT credit they expect to use
- Manufacturers relying heavily on additional depreciation
How to opt: Form 10-IC
- Compute tax under both options for the current year and the next 2–3 years.
- Pass a board resolution approving the option (recommended).
- File Form 10-IC online on the income tax portal, signed with the director’s DSC, on or before the ITR due date – 31 October 2026 for most companies for FY 2025-26.
- Quote the Form 10-IC acknowledgement in your ITR-6.
Form 10-IC is filed only once. The option then applies to all later years and cannot be withdrawn. If the conditions are breached in any year, the option becomes invalid from that year.
What changes under the Income-tax Act, 2025?
From Tax Year 2026-27, the same option is available under Section 200 of the new Act. The option must be exercised in the prescribed manner on or before the return due date under Section 263(1), and it cannot be withdrawn later. MAT now sits in Section 206, and companies under Section 200 remain outside MAT. See our guide: Income-tax Act 2025 – what changes for your business.
Frequently asked questions
Can a newly incorporated company opt for 115BAA in its first year?
Yes. There is no minimum period. Many new companies opt from their first return.
Is MAT payable under 115BAA?
No. Companies that opt for 115BAA (Section 200) are outside MAT.
Can we switch back to the normal rate later?
No. Once exercised, the option cannot be withdrawn for that or any later year.
Does 115BAA apply to capital gains?
Capital gains continue to be taxed at their special rates where applicable; the 22% rate applies to other income.
Get a side-by-side calculation
Before you file Form 10-IC, let our team compare both options using your actual numbers. We handle ITR-6 filing, Form 10-IC and annual compliance for private limited companies in Patna and across Bihar.
Call or WhatsApp: 095343 31454 · Srikrishnapuri, Patna – 1 · Mon–Sat, 9:30 AM – 7 PM
This article is for general information based on the law as of September 2026 and is not tax advice. Tax rates are as per the Finance Act, 2025 for FY 2025-26. Please consult a tax professional before exercising the option.