Section 200 Income Tax Act 2025: Can Domestic Companies Opt for 22% Tax?
Section 200 allows an eligible domestic company to choose a concessional base income-tax rate of 22%, provided it computes its income without specified deductions and restricted losses and exercises the prescribed option on time.
Who can opt for the 22% corporate tax rate?
Under section 200(1), a domestic company may opt to pay income-tax at 22% on its total income computed under the special conditions of the section. The provision is subject to the applicable rules in Parts A, B and E and the relevant provisions of Part C of Chapter XIII, excluding sections 199 and 201. It is an elective regime, not an automatic rate for every domestic company.
Unlike the separate regime for new manufacturing companies under section 201, section 200 is not restricted to newly incorporated manufacturing businesses. The company must, however, satisfy the specified computation and procedural requirements.
What deductions are restricted by section 200(1)(a)?
To compute income under this regime, the company cannot claim deductions under:
- Section 45(2) or section 47(1)(b), as specified in section 200(1)(a)(i).
- Chapter VIII, except deductions under section 146 and section 148, subject to their own requirements.
- The deductions identified in section 205(1)(a) to (g).
Taxpayers should examine the exact wording of each referenced provision before preparing the return; the restriction does not mean that every ordinary business expenditure is automatically disallowed.
What happens to carried-forward losses and depreciation?
Section 200(1)(b) and (c)
The company cannot set off brought-forward losses or depreciation from an earlier tax year to the extent attributable to the deductions barred by section 200(1)(a). A similar restriction applies to qualifying losses and unabsorbed depreciation deemed under section 116.
Section 200(3)
The restricted loss or depreciation is treated as having been fully given effect to. It cannot be claimed again in a later tax year. This makes a review of existing tax losses essential before opting in.
Section 200(2): Failure to comply
If a company fails to satisfy the requirements of subsection (1) in a tax year, its option becomes invalid for that year and subsequent years. The ordinary provisions then apply as though the option had not been exercised.
How and when must the option be exercised?
Section 200(5): The option must be exercised in the prescribed manner on or before the return-filing due date under section 263(1). Once validly exercised, it applies to subsequent tax years.
Section 200(6): The company cannot subsequently withdraw the option for that year or any later year. Under section 200(7), a domestic company whose section 201 option becomes invalid for the specified breaches of section 205(2)(b), (c) or (d) may elect section 200.
Example: Effective tax on Rs. 1 crore
Assume an eligible company has taxable income of Rs. 1,00,00,000 computed after applying all section 200 restrictions, and no income subject to a different special rate.
| Component | Amount |
|---|---|
| Income-tax at 22% | Rs. 22,00,000 |
| Surcharge at 10% | Rs. 2,20,000 |
| Health and Education Cess at 4% | Rs. 96,800 |
| Total | Rs. 25,16,800 |
The illustrative combined rate is 25.168%, before considering any separate special-rate income, credits or other case-specific adjustments. The 10% surcharge for companies under this regime is confirmed in the Finance Act, 2026 explanatory memorandum.
Relevant statutory definitions and concepts
Frequently asked questions
Is the final corporate tax rate exactly 22%?
No. The 22% is the base rate. With a 10% surcharge and 4% cess, the illustrative combined rate is 25.168%.
Can an existing domestic company choose section 200?
Yes, subject to the statutory conditions and prescribed option procedure. The section is not limited to new manufacturers.
Can a company later return to the ordinary regime?
No voluntary withdrawal is permitted after the option is exercised. A breach of the conditions may instead invalidate the option under subsection (2).
Can a company claim any Chapter VIII deductions?
Section 200 expressly preserves the exceptions for sections 146 and 148, subject to their conditions. Other Chapter VIII deductions are generally restricted.
Does section 200 of the 2025 Act concern TDS?
No. Section 200 of the Income-tax Act, 2025 concerns the optional corporate tax regime. Section 200 of the Income-tax Act, 1961 concerned duties of persons deducting tax; the numbering differs.
Official statutory references
Last reviewed: 10 November 2026. This article provides general legal information; the applicable tax position depends on the facts and current statutory rules.