Section 199 Income Tax Act 2025: Which Manufacturing Companies Qualify for 25% Tax?

Section 199 offers an optional 25% income-tax rate to qualifying domestic manufacturing companies established and registered on or after 1 March 2016, subject to restrictions on activities, deductions, carried-forward losses and exercise of the option.

Current legal position: Section 199 is part of the special tax regime for certain domestic manufacturing companies. The stated 25% is the base income-tax rate; applicable surcharge and health and education cess must be considered separately. Verify the operative text and Finance Act amendments for the relevant tax year.

What does Section 199 provide?

Section 199(1) allows an eligible domestic company to elect a 25% tax rate on its total income for a tax year, notwithstanding the general provisions of the Act, but subject to the stated statutory qualifications. It is a company-level option, not a special rate for every manufacturer or for individual business owners.

The provision broadly corresponds to Section 115BA of the Income-tax Act, 1961. The distinct regimes for other domestic companies and new manufacturing companies appear in Sections 200 and 201 of the 2025 Act.

What are the conditions for the 25% rate?

1. Date of establishment and registration

Under Section 199(1)(a), the domestic company must have been set up and registered on or after 1 March 2016. A company formed before that date does not qualify merely because it later begins manufacturing.

2. Permitted business activities

Section 199(1)(b) requires the company to be engaged only in the manufacture or production of an article or thing and research relating to, or distribution of, articles or things manufactured or produced by it. Unrelated trading or service businesses can jeopardise eligibility.

3. Income computation restrictions

The company's total income must be computed without the specified deductions and loss set-offs described below.

Which deductions and losses are restricted?

Section 199(1)(c)(i) restricts deductions under the identified provisions of Sections 45 and 47, Chapter VIII-C (except Section 146), and the provisions identified in Section 205(1)(a) to (g). The precise scope of each restriction must be checked against the applicable amended statutory text.

Under Section 199(1)(c)(ii), a carried-forward loss attributable to those disallowed deductions cannot be set off. Section 199(2) treats that loss as having received full effect, so it cannot be deducted in a subsequent tax year.

Practical point: Before electing this rate, compare the value of forfeited incentives and carried-forward losses with the benefit of the lower rate. The election can affect future years.

How and when is the option exercised?

Section 199(3) requires the company to exercise the option in the prescribed manner on or before the due date under Section 263(1) for furnishing its first required return of income. Once exercised, the option continues for subsequent tax years.

Under Section 199(4), the option generally cannot be withdrawn for that or any later tax year, except where the company exercises the option under Section 200. Check the current prescribed form, filing procedure and eligibility before making the election.

Example: Basic income-tax computation

Suppose an eligible company has total income of Rs. 1,00,00,000 after making all required adjustments and elects Section 199. Basic income-tax at 25% would be Rs. 25,00,000. Applicable surcharge and cess are additional; this illustration does not calculate them or compare alternative corporate tax regimes.

For a meaningful decision, the company should also calculate tax under the other available regimes after taking account of the relevant deductions, surcharge, cess and other applicable provisions.

Relevant statutory definitions and expressions

Domestic company: A company satisfying the definition of domestic company under Section 2 of the Income-tax Act, 2025; it is not synonymous with every business carrying on activities in India.

Manufacture or production: The qualifying activities under Section 199(1)(b); classification depends on the actual operations and relevant statutory meaning and judicial interpretation.

Tax year: The statutory period for which income is computed and assessed under the Income-tax Act, 2025.

Option: The prescribed election to have the eligible company's income taxed under Section 199, subject to its continuing and withdrawal rules.

Frequently asked questions

Is the 25% rate automatic for all manufacturing companies?

No. It is an optional rate available only where the requirements of Section 199 are met and the prescribed option is exercised on time.

Can a company set up before March 2016 opt for Section 199?

No. Section 199(1)(a) expressly requires setting up and registration on or after 1 March 2016.

Can the company claim all deductions under the Act?

No. Section 199 specifically disallows identified deductions and the set-off of losses attributable to them.

Can the election be withdrawn later?

Ordinarily no. Section 199(4) permits an exception where an option is exercised under Section 200, subject to that section's requirements.

Does 25% include surcharge and cess?

No. The 25% is the base income-tax rate, and other applicable levies must be calculated separately.

Statutory text and official resources

Read the legislation and current amendments before relying on the election or tax computation:

Income-tax Act, 2025 - Gazette Income Tax Department - 2025 Act Official e-Filing Portal

Updated: 10 November 2026. This article is for general legal information and should be read with the applicable Act, Rules and notifications.