Introduction to Section 115BAA Tax Regime

The new section – Section 115BAA has been inserted in the Income Tax Act,1961 to give the benefit of a reduced corporate tax rate for the domestic companies. Section 115BAA states that domestic companies have the option to pay tax at a rate of 22% with a surcharge and education cess of 10% and 4% along with a couple of exemptions for qualifying entities. Also, the MAT rate is 15%.

Eligibility Criteria for Section 115BAA

The benefit of availing the lower tax rate shall apply only to domestic companies. It does not apply to LLPs, partnership firm, foreign companies etc.

Conditions to opt for Section 115BAA

Companies opting for section 115BAA should not avail any exemptions/incentives under different provisions of income tax. Therefore, the total income of such company shall be computed without:

    • Claiming any deduction especially available for units established in special economic zones under section 10AA
    • Claiming additional depreciation under section 32 and investment allowance under section 32AD towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal
    • Claiming deduction under section 33AB for tea, coffee and rubber manufacturing companies
    • Claiming deduction towards deposits made towards site restoration fund under section 33ABA by companies engaged in extraction or production of petroleum or natural gas or both in India
    • Claiming a deduction for expenditure made for scientific research under section 35
    • Claiming a deduction for the capital expenditure incurred by any specified business under section 35AD
    • Claiming a deduction for the expenditure incurred on an agriculture extension project under section 35CCC or on skill development project under section 35CCD
    • Claiming deduction under chapter VI-A in respect to certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB and so on, except deduction under section 80JJAA
    • Companies shall not claim a set-off of any loss carried forward from earlier years, if such losses were incurred in respect of the aforementioned deductions.
    • Such companies will have to exercise this option to be taxed under the section 115BAA on or before the due date of filling income tax returns ie. Usually 30th September of assessment year.
    • There is no restriction on the turnover and the company need not to be anew company, any existing company cam migrate into this section at any point.

Normal Corporate Tax vs. Section 115BAA (Quick Comparison)

Use this table to decide if the concessional 115BAA regime suits your company.

Parameter Normal Regime Section 115BAA Regime
Base corporate tax rate Varies by conditions (historically 25%/30%) 22% (flat)
Surcharge & Cess As applicable 10% surcharge + 4% H&E cess
Effective tax rate Depends on slab & incentives ~25.168% (rounded 25.17%)
Deductions/Exemptions Available as per chapter-wise provisions Not available (most deductions/incentives must be foregone)
MAT / MAT Credit Applicable as per law MAT not applicable; MAT credit can’t be used
Irrevocability N/A Once opted, can’t be withdrawn
Best for Companies benefiting from heavy incentives Companies with few/no incentives, steady profits

Note: 115BAA effective rate ≈ 25.168% (22% + 10% surcharge + 4% cess). Sources: ClearTax, Paytm Blog, EZTax.

Real-Life Scenarios: How 115BAA Changes Your Tax Bill

Scenario A: ₹50 Crore PBT Company (No major incentives)

  • Profit before tax (PBT): ₹50,00,00,000
  • Under 115BAA: Effective ~25.168% ⇒ Tax ≈ ₹12.58 Cr
  • Under Normal Regime (illustrative): If effective burden works out higher due to slabs/incentives expiry, tax may exceed the above.

Takeaway: For companies not using large deductions, 115BAA often reduces the outflow.

Scenario B: ₹50 Crore PBT with Heavy Deductions (e.g., 80IA/35AD earlier)

  • If you still qualify for substantial incentives under the normal regime, the normal route could be competitive or better.
  • However, once 115BAA is chosen, most of those incentives are foregone. Model both options before switching.

Takeaway: Run a two-route computation (normal vs 115BAA) before opting.

Get a 115BAA vs Normal Computation Review →

 

MAT credit u/s 115JAA:

  • Companies opting for Section 115BAA will not be required to pay minimum alternate tax (MAT) under section 115JB of the act.
  • The companies would not be able to reduce their tax liabilities under section 115BAA by claiming MAT credits

Key Provisions & Tax Implications under 115BAA

    • Once the option is exercised, then subsequent revocation of section 115BAA is not possible
    • There will be a surcharge @10% irrespective of the income
    • The effective tax rate will 25.168%, including the surcharge of 10% and 4% cess

Compliance Deadlines for AY 2025–26 (FY 2024–25)

  • Tax Audit Report (as applicable): 30 September 2025.
  • ITR due date — Companies (audit cases): 31 October 2025.
  • ITR due date — TP cases (Form 3CEB u/s 92E): 30 November 2025.
  • Non-audit individual due date (for context): extended to 15 September 2025.

Always verify last-minute CBDT notifications for extensions before filing.

The domestic companies who do not wish to avail this concessional rate immediately can opt for the same after the expiry of their tax holiday period or exemptions/incentives as mentioned.
However, once such a company opts for the concessional tax rate under section 115BAA of the Income Tax Act,1961, it cannot be subsequently withdrawn.

FAQs on Section 115BAA (2025 Update)

Can old/existing companies opt for Section 115BAA?

Yes. Any domestic company (new or existing) can opt for 115BAA, provided it foregoes specified deductions/exemptions and meets the conditions. Once exercised, the option is irrevocable.

What is the effective tax rate under Section 115BAA?

The effective rate is ~25.168% (22% base + 10% surcharge on tax + 4% health & education cess).

Is MAT applicable if we choose 115BAA?

No. MAT does not apply under 115BAA, and MAT credit can’t be used to reduce tax under this section.

When do we need to exercise the option?

On or before the due date of filing the return for the relevant Assessment Year (u/s 139(1)).

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