In a significant move to boost investment and economic activity in India, the government introduced Section 115BAA under the Income Tax Act. This section is part of a broader effort to simplify corporate taxation and make India more competitive globally.
So, what does it offer? In short—a lower tax rate for domestic companies, provided they meet certain conditions.
Let’s explore how Section 115BAA outlines a lower tax provision for domestic companies and whether your business should consider opting for it.
What Is Section 115BAA?
Section 115BAA was inserted into the Income Tax Act through the Taxation Laws (Amendment) Ordinance, 2019.
It offers Indian residential firms the option to go with a lowered tax rate of 22%, provided they don’t claim certain exemptions and deductions. This provision is applicable from the Financial Year 2019–20 (Assessment Year 2020–21) onwards.
So, a company may choose to be taxed at the rate of 22%, compared to the existing higher tax rates of 25% or 30%, depending on turnover.
However, it’s important to note—this 22% does not include surcharge and cess, which bring the effective tax rate to 25.17%.
Who Can Opt for Section 115BAA?
This section applies only to domestic companies.
The key conditions are:
- The company must be a resident in India.
- It should not claim any specified exemptions or incentives, such as:
- Additional depreciation
- Investment allowance
- Deductions under Section 10AA, 35AD, 80-IA to 80-IE, etc.
- It must opt in by filing Form 10-IC before the due date of filing the return.
Once opted, the company cannot withdraw from this regime in subsequent years. That’s why the decision must be carefully evaluated.
Tax Rate and Calculation Under 115BAA
Under this section, the total income of the domestic company shall be computed:
- Without claiming deductions under Chapter VI-A (except Section 80JJAA and 80M)
- Without the set-off of carried forward losses related to disallowed deductions
- Without MAT (Minimum Alternate Tax), as the MAT provisions are not applicable
The new rate structure is:
- Base tax rate: 22%
- Surcharge: 10%
- Health & Education Cess: 4%
Effective rate = 25.17%
This makes Section 115BAA an attractive option for companies not heavily dependent on tax incentives.
When Is It Beneficial to Opt for Section 115BAA?
Choosing Section 115BAA is ideal if:
- Your company does not offer many exemptions or deductions
- You have stable profits and want to reduce your effective tax outgo
- You want to simplify tax compliance by opting out of MAT and related adjustments
For example, if a domestic company with ₹10 crore turnover typically pays 30% tax and doesn’t benefit much from deductions, switching to the 22% concessional rate under Section 115BAA can result in considerable tax savings.
However, companies enjoying significant exemptions may find the traditional route more beneficial in the short term.
Key Points to Remember
- Once opted, the concessional tax rate under Section 115BAA is irreversible.
- The option is available only to domestic companies, not LLPs or foreign companies.
- Companies opting for this regime are exempt from paying MAT.
- Losses attributable to disallowed deductions cannot be carried forward.
- Filing of Form 10-IC within the due time is mandatory to avail the benefit.
How to Opt for Section 115BAA?
To opt for this scheme, the company needs to:
- Log in to the Income Tax e-filing portal.
- Go to e-File > Income Tax Forms > File Income Tax Forms.
- Select Form 10-IC under Section 115BAA.
- Submit before the due date of filing the ITR under Section 139(1).
Timely and correct filing is essential to avoid disqualification.
Real-Life Use Case
Let’s say a domestic manufacturing company has no special deductions and pays ₹1 crore as annual tax under the old regime. If they opt for Section 115BAA, their new tax outgo could drop to ₹83–85 lakhs.
Over a few years, this adds up to substantial savings, which can be reinvested into business operations.
Final Thoughts
Section 115BAA is a well-thought-out initiative aimed at reducing the corporate tax burden and simplifying compliance for Indian businesses. It outlines a lower tax provision for domestic companies, encouraging reinvestment and growth.
To recap:
- Section 115BAA offers Indian residential firms the option to go with a lowered tax rate of 22%
- A company may choose to be taxed at the rate of 22%, but cannot claim major deductions
- The total income of the domestic company shall be computed without exemptions under this scheme
Before opting in, always do a comparative calculation to see if it’s beneficial in your case.
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