Under the Income Tax Act, 1961, domestic companies in India have the option to be taxed either under the normal provisions or under concessional tax regimes such as Section 115BAA of Income Tax Act and Section 115BAB.
Under the normal provisions, the applicable tax rate depends on the company’s turnover. Companies with turnover up to Rs.400 crore are taxed at 25%, while others are taxed at 30%. In addition, surcharge is levied based on total income (7% or 12%), along with Health and Education Cess at 4%.
In contrast, the concessional regime under Section 115BAA offers a flat tax rate of 22%, subject to a fixed surcharge of 10% and cess at 4%. However, this benefit comes with the condition that the company must forgo certain deductions and incentives, such as those under Chapter VI-A and additional depreciation. Further, Minimum Alternate Tax (MAT) is not applicable under this regime.
Similarly, Section 115BAB provides a concessional tax rate of 15% for new manufacturing companies, subject to specified conditions.
A careful comparison of tax liability under both regimes is essential before exercising the option, as the decision is generally irreversible.
| Normal Tax Regime | ||
| 1 | Companies with turnover up to Rs. 400 crores (in the previous financial year): | 25% |
| 2 | Companies with turnover exceeding Rs.400 crore. | 30% |
| Concessional Tax Regime | ||
| 1 | Section 115BAA: Tax rate (excluding surcharge and cess) for companies that do not claim certain deductions. | 22% |
| 2 | Section 115BAB: Tax rate (excluding surcharge and cess) for new manufacturing companies incorporated after 1st October,2019 | 15% |
Section 115BAA: This regime offers a flat rate of 22% and is available to companies that forego certain deductions and exemptions, such as accelerated depreciation and MAT credit. It is ideal for companies with minimal deductions and high taxable income.
Section 115BAB: This section is designed for new manufacturing companies and provides a concessional tax rate of 15%. To be eligible, companies must be incorporated after 1st October 2019 and commence manufacturing by 31st March 2024.
Note:
- Once a company opts for concessional taxes under section 115BAA, they cannot opt out until they are disqualified under the provisions of the act.
- Due date for filing ITR for companies is 31st October of the next financial year. The taxpayer should exercise this option on or before this due date.
- Effective rate of 25.17% [ 22%+10%+4%] under section 115BAA
- Effective rate of 17.16% [ 15%+10%+4%] under section 115BAB
- Such companies will not be required to pay MAT (minimum alternative tax) under section 115BAA and115JB of the act.
- Form 10-ID is required to be filed if any Indian company wants to opt for section 115BAB and get the benefits of a lower tax rate of 15% (excluding Surcharge and cess).
- Form 10-IC is required to be filed if any Indian company wants to opt for section 115BAB and get the benefits of a lower tax rate of 22% (excluding Surcharge and cess).
Example: Section 115BAA vs Normal Tax
Case: PIXEL Ltd. (Domestic Company)
- Turnover in PY 2023–24 = Rs.350 crores
Therefore, eligible for 25% tax rate under normal provisions
Turnover (PY 2023-24) = Rs.350 crore
Eligible for 25% tax rate under normal provisions
Total Income > Rs.1 crore but ≤ Rs.10 crore
Surcharge = 7% (Normal provisions)
Financial Data
| Particulars | Amount (Rs.) |
| Profit before tax | 1,00,00,000 |
| Deduction u/s 80-IA | 20,00,000 |
| Additional depreciation | 10,00,000 |
Taxable Income: 1,00,00,000-20,00,000-10,00,000=Rs.70,00,000
Normal Tax: @ 25% on Rs. 70,00,000 = RS. 17,50,000
- Tax = Rs.17,50,000
- Cess @ 4% = Rs.70,000
Total = Rs.18,20,000
Tax under
Section 115BAA of Income Tax Act
Key Features
- Tax Rate = 22%
- Surcharge = 10% (fixed)
- No deduction under Chapter VI-A / additional depreciation
- MAT not applicable
Tax Calculation
- Tax @ 22% = Rs.22,00,000
- Surcharge @ 10% = Rs.2,20,000
Subtotal = Rs.24,20,000
- Cess @ 4% = Rs.96,800
Total Tax (115BAA) = Rs.25,16,800
Final Comparison
| Particulars | Normal Provisions | 115BAA |
| Tax Rate | 25% | 22% |
| Surcharge | NA | 10% (fixed) |
| Deductions | Allowed | Not allowed |
| Tax Liability | Rs. 18,20,000 | Rs.25,16,800 |
Final Conclusion
Company should NOT opt for Section 115BAA because normal provisions result in lower tax liability
Takeaway:
- 15BAA = 22% + fixed 10% surcharge + no deductions
Normal = 25% + variable surcharge + deductions allowed
