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What is Section 115BAA?
Section 115BAA, introduced via the Taxation Laws (Amendment) Ordinance 2019, offers domestic companies the option to pay income tax at a concessional rate of 22% (plus surcharge and cess), in lieu of normal rates of 25%/30%.
This brought India's corporate tax rate in line with global rates (around 21-25%) and is one of the biggest tax reforms in recent years. Most established Pvt Ltd companies opt for 115BAA.
Effective tax rate breakdown
Total tax under 115BAA:
- Base tax: 22%
- Surcharge: 10% of tax (uniform, not slab-based)
- Health & Education Cess: 4% of (tax + surcharge)
- Effective rate: 25.168%
Compare with normal regime (small company - turnover ≤ ₹400 crore):
- Base tax: 25%
- Surcharge: 7% (if income ₹1-10 cr) or 12% (above ₹10 cr)
- Cess: 4%
- Effective: 27.82% / 29.12%
For larger companies (turnover > ₹400 crore), normal rate is 30% + surcharge + cess = effective 34.94%. Saving from 115BAA: ~10%.
Conditions to claim 115BAA
To opt for 22% rate, the company must FOREGO these exemptions:
- Section 10AA — SEZ unit exemption
- Section 32(1)(iia) — Additional depreciation (20% on new plant)
- Section 32AD, 33AB, 33ABA — Investment-linked deductions
- Section 35(1)(ii), (iia), (iii), (2AA), (2AB) — Scientific research deductions (super-deduction)
- Section 35AD — Specified business deductions
- Section 35CCC, 35CCD — Agricultural extension, skill development
- Section 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID, 80-IE — Investment/area-based deductions
- Section 80JJAA can still be claimed (employment generation)
- Brought forward depreciation losses related to above sections
MAT (Minimum Alternate Tax) at 15% — Not applicable once 115BAA is opted.
How to opt in
- Compute tax liability under both regimes (normal + 115BAA) for comparison
- If 115BAA is beneficial, file Form 10-IC electronically before due date of ITR-6
- The option, once exercised, is irrevocable — applies for all subsequent years
- If conditions are violated later, the option lapses and normal rates apply
- File ITR-6 indicating 115BAA election
Cannot opt in after due date — file Form 10-IC on or before filing ITR (typically by 31 October).
Who should opt?
Beneficial for:
- Most pure-service companies (no SEZ benefits, no R&D deductions)
- Companies with stable operations (no investment-linked deductions)
- Larger companies (saving from 30% to 22% is meaningful)
Not beneficial for:
- SEZ units claiming Section 10AA
- Companies claiming Section 80-IA/IB area benefits (specific sectors)
- R&D-heavy companies claiming super-deductions (now restricted)
- Small companies with low income (saving is minimal)
Run the numbers yourself or with your CA — Form 10-IC is a one-way door.