Section 115BAA of the Income Tax Act, 1961 provides a concessional tax rate of 22% (plus surcharge & cess) for domestic companies that forgo specified exemptions and deductions. Introduced in 2019, this regime aims to simplify taxation, enhance competitiveness, and attract investment. Below is a detailed breakdown of its key provisions:
1. Applicability & Key Features
(A) Eligible Companies
- Domestic companies(incorporated in India).
- Not applicableto foreign companies or LLPs.
(B) Tax Rate & Effective Burden
| COMPONENT | RATE | EFFECTIVE TAX RATE |
| Base Tax Rate | 22% | – |
| Surcharge (flat) | 10% | – |
| Health & Education Cess | 4% | 25.17% |
Note: The effective rate is uniform (25.17%) regardless of income level.
(C) Key Benefits
✔ Lower Tax Rate: Reduced from 30% to 22%.
✔ No MAT (Minimum Alternate Tax): Exempt from MAT under Section 115JB.
✔ Simplified Compliance: No need to track complex exemptions.
2. Conditions for Availing Section 115BAA
To opt for this regime, companies must forgo the following deductions/exemptions:
(A) Prohibited Deductions
- SEZ Benefits (Section 10AA)
- Additional Depreciation (Section 32(1)(iia))
- Investment Allowance (Section 32AD)
- R&D Expenditure (Section 35)
- Capital Expenditure (Section 35AD)
- Chapter VI-A Deductions(e.g., 80IA, 80IB), except:
- Section 80JJAA(employment generation)
- Section 80M(dividend redistribution)
(B) Restrictions on Losses & Depreciation
- No set-offof carried-forward losses or unabsorbed depreciation linked to disallowed deductions.
- Normal depreciation (Section 32)is allowed, but accelerated depreciation is not.
(C) Irrevocable Option
- Must opt-in via Form 10-ICbefore the due date of ITR filing (typically September 30/November 30).
- Once chosen, cannot be withdrawnin subsequent years.
3. Comparison with Other Tax Regimes
| REGIME | BASE RATE | EFFECTIVE RATE | MAT APPLICABLE? | KEY CONDITION |
| Normal | 25%/30% | 26%–34.94% | Yes (15%) | Allows exemptions |
| 115BAA | 22% | 25.17% | No | No exemptions |
| 115BAB (New Mfg.) | 15% | 17.16% | No | Only for new mfg. units |
Example:
- A company with ₹5 crore income under 115BAApays ₹1.26 crore (25.17%).
- Under the normal regime, it could pay ₹1.3–1.75 crore(26%–35%) if claiming deductions.
4. Practical Implications
(A) Ideal for Companies That
- Do not rely on SEZ/R&D deductions.
- Have minimal carried-forward losses.
- Seek long-term rate stability.
(B) Not Suitable for Companies That
- Claim heavy exemptions (e.g., 80IA, 35AD).
- Have significant MAT creditsfrom past years.
5. Recent Updates (FY 2025–26)
- No MAT Credit: Companies under 115BAA cannot use past MAT credits.
- Clause 200 (Income Tax Bill, 2025): Reiterates 115BAA’s provisions but no major changes
