Section 115BAA of Income Tax Act: 22% Tax Rate for Domestic Companies
Updated: 28 September 2026
Section 115BAA of the Income-tax Act, 1961 gives an eligible domestic company an option to pay income tax at a concessional base rate of 22%, subject to the conditions prescribed in the section. The regime applies from Assessment Year 2020-21 onwards and is optional, not automatic.
- Eligible taxpayer: a domestic company.
- Base income-tax rate: 22%.
- Surcharge: 10% of income tax.
- Health and Education Cess: 4% on income tax plus surcharge.
- Effective tax rate: 25.168%, subject to the treatment of any income taxable at a special rate.
- MAT under section 115JB does not apply after a valid option under section 115BAA.
- The option is exercised in Form 10-IC within the prescribed time.
- Once validly exercised, the option applies to subsequent assessment years and cannot ordinarily be withdrawn.
What is Section 115BAA?
Section 115BAA is a special corporate tax regime for domestic companies. It begins with a non-obstante clause and permits a domestic company to compute tax on its total income at 22% if the conditions in section 115BAA(2) are satisfied. The option is available for a previous year relevant to Assessment Year 2020-21 or any later assessment year.
This regime trades a lower corporate tax rate for the surrender of specified deductions, incentives and certain loss or depreciation set-offs. A company should therefore compare its tax position under the ordinary provisions with its tax position under section 115BAA before exercising the option.
Tax rate under Section 115BAA
| Component | Rate |
|---|---|
| Income tax | 22% |
| Surcharge | 10% of income tax |
| Health and Education Cess | 4% of income tax plus surcharge |
| Effective rate | 25.168% |
The 10% surcharge under this regime applies irrespective of the usual income thresholds applicable to domestic companies outside sections 115BAA and 115BAB. The effective 25.168% figure is calculated as 22% income tax, increased by 10% surcharge and then by 4% Health and Education Cess.
Conditions for opting for Section 115BAA
Under section 115BAA(2), the company's total income must be computed without specified deductions and incentives. The principal restrictions include the following:
- No deduction under section 10AA for eligible Special Economic Zone units.
- No additional depreciation under section 32(1)(iia).
- No deduction under section 32AD.
- No deductions under sections 33AB and 33ABA.
- No specified deductions under section 35, including the deductions identified in section 115BAA(2).
- No deduction under sections 35AD, 35CCC and 35CCD.
- No deductions under Chapter VI-A under the heading relating to deductions in respect of certain incomes, except deductions expressly permitted by section 115BAA, including sections 80JJAA and 80M.
Section 80JJAA
Section 80JJAA provides a deduction linked to the employment of additional employees, subject to its statutory conditions. This deduction is expressly preserved for a domestic company opting for section 115BAA.
Section 80M
Section 80M provides a deduction to a domestic company in respect of specified inter-corporate dividend income, subject to the conditions and limits contained in that section. It is also permitted under the section 115BAA regime.
IFSC units and Section 80LA
Section 115BAA(4) contains a specific rule for a company having a Unit in an International Financial Services Centre referred to in section 80LA(1A). For such a Unit, the restrictions are modified so that the deduction under section 80LA is available subject to fulfilment of the conditions of that section.
Restriction on brought-forward losses and depreciation
A company opting for section 115BAA cannot set off a brought-forward loss or depreciation from an earlier assessment year to the extent that the loss or depreciation is attributable to a deduction that is not permitted under section 115BAA(2). The same restriction applies to specified loss or unabsorbed depreciation deemed under section 72A where it is attributable to those deductions.
Section 115BAA(3) treats the restricted loss and depreciation as having been given full effect. Consequently, no further deduction for that amount is allowed in a later year. This is an important factor when a company has substantial carried-forward tax incentives or additional depreciation.
Normal depreciation is still available
Depreciation under section 32 may continue to be claimed in the prescribed manner, but additional depreciation under section 32(1)(iia) is excluded. A company should distinguish ordinary depreciation from the additional depreciation specifically barred by section 115BAA.
MAT does not apply to a company opting for Section 115BAA
Section 115JB contains the Minimum Alternate Tax provisions for companies. However, section 115JB(5A) excludes a person that has exercised the option under section 115BAA or section 115BAB. Accordingly, a company validly opting for section 115BAA is not required to pay MAT under section 115JB.
How to exercise the option: Form 10-IC
The option under section 115BAA is exercised electronically in Form 10-IC. Under section 115BAA(5), the option must be exercised in the prescribed manner on or before the due date specified under section 139(1) for furnishing the return of income for the relevant previous year.
- Log in to the Income Tax e-Filing portal as the domestic company.
- Choose the prescribed Form 10-IC service.
- Complete the required company and assessment details.
- Submit and e-Verify the form using the permitted verification method, including DSC as prescribed on the portal.
- File within the applicable statutory time limit.
Once the option is validly exercised, it applies to subsequent assessment years and cannot subsequently be withdrawn for the same or another previous year. Section 115BAA also contains a specific route for a company whose section 115BAB option becomes invalid for the violations specified in section 115BAA(5).
What happens if the conditions are violated?
If the company fails to satisfy the conditions in section 115BAA(2) in a previous year, the option becomes invalid for the assessment year relevant to that previous year and for subsequent assessment years. The other provisions of the Income-tax Act then apply as if the section 115BAA option had not been exercised for those years.
Section 115BAA compared with the normal domestic company regime
The section 115BAA regime is not necessarily beneficial merely because its headline rate is lower. A company with substantial deductions, incentives, brought-forward losses linked to restricted deductions, or other tax attributes should calculate both alternatives before opting. Since the section 115BAA option is generally irreversible once validly exercised, the decision should be based on present and reasonably expected future tax positions.
Frequently asked questions
Is Section 115BAA compulsory for every domestic company?
No. It is an optional concessional regime for a domestic company that satisfies the statutory conditions.
What is the tax rate under Section 115BAA?
The base rate is 22%. A 10% surcharge and 4% Health and Education Cess apply, producing an effective rate of 25.168% on income taxed at that rate.
Can a company claim Section 80JJAA after opting for Section 115BAA?
Yes, subject to satisfaction of the conditions of section 80JJAA.
Can a company claim Section 80M under Section 115BAA?
Yes, section 80M is an expressly permitted deduction under the current section 115BAA framework, subject to the conditions of section 80M.
Does MAT apply after opting for Section 115BAA?
No. Section 115JB does not apply to a person that has exercised the option under section 115BAA.
Which form is used to opt for Section 115BAA?
Form 10-IC is the prescribed electronic form for exercising the option.
Can the Section 115BAA option be withdrawn later?
Once validly exercised, the option applies to subsequent assessment years and cannot subsequently be withdrawn, subject to the statutory provisions governing validity of the option.
Official references
For the current statutory text and filing procedure, refer to the Income Tax Department resources below. Tax law can be amended by later legislation, rules, notifications and judicial decisions, so the law applicable to the relevant assessment year should always be checked.