Key Takeaways

Section 115BAA is a provision of the Income Tax Act for domestic companies. This section aims to allow these companies to opt to pay tax at a concessional fixed rate of 22%.
Along with the fixed rate of 22%, domestic companies are also liable to pay a surcharge at a flat 10% and a cess at 4%. This makes the effective tax liability under Section 115BAA roughly 25.17%.
If your business opts for Section 115BAA, then you cannot withdraw it later. So, before opting for this section, you must read all the eligibility and deductions (like depreciation, Chapter VI-A deductions, etc.) related to this section.

Section 115BAA allows domestic companies to pay tax at a lower fixed rate (22%), excluding surcharge (10%) and cess (4%). The following table gives a summary of the effective tax liability under Section 115BAA:

Particulars	Applicable Rate
Fixed Tax Rate	22%
Surcharge	10%
Cess	4%
Effective Tax Rate (22 × 1.1 × 1.04)	25.168% (approx. 25.17%)

This calculation shows that the effective tax rate under Section 115BAA is roughly 25.17%.

For instance, ABC Pvt. Ltd. earned ₹50,00,000 as profit in the FY 2024-25. If ABC Pvt Ltd opts for Section 115BAA, the tax will be:

Particulars	Amount (₹)
Tax (22%) = ₹50,00,000 × 22%	₹11,00,000
Surcharge (10%) = ₹11,00,000 × 10%	₹1,10,000
Cess (4%) = [(₹11,00,000 + ₹1,10,000) × 4%]	₹48,400
Total Tax Liability	₹12,58,400

This fixed rate makes it easy for companies to predict their tax liability. In this blog, we will learn more about Section 115BAA of the Income Tax Act, its features, eligibility, and due dates.

Read More - Section 115BAB of the Income Tax Act: Complete Guide & Benefits

Key Features Of Section 115BAA

Under Section 115BAA, companies enjoy certain benefits that help reduce tax complexities. The following table highlights the key features of the Section 115BAA:

Features	Details
Applicability	Only domestic companies that distribute income as dividends in India.
Reduced Tax Rate	Effective tax rate of 25.17%.
Irrevocable Choice	Once opted, the company cannot withdraw unless disqualified.
Deadline to Opt	Your business must make a decision on or before the due date of ITR.
Depreciation Limit	Additional depreciation is not allowed. Only normal depreciation can be claimed.

The above-mentioned table reflects the conditions of Section 115BAA of the Income Tax Act. Your company can use this information to effectively plan their tax strategy.

Bonus Tip: Minimum Alternate Tax (MAT) is a minimum tax that companies must pay even if their taxable income is reduced by exemptions or deductions. If your business is opting for the Section 115BAA, then you are not liable to pay MAT. Also, they cannot use previously accumulated MAT credits.

Eligibility And Deductions Under Section 115BAA

Before moving ahead, it is necessary to understand which deductions are allowed and which are restricted under this section. The following table summarises the key deductions and their status for companies opting under Section 115BAA:

Deduction Type	Section Reference	Status under 115BAA
Exemptions or Incentives	General	Not allowed
Units in Special Economic Zones	10AA	Not allowed
Additional Depreciation	32	Not allowed (Only normal depreciation is allowed)
Investment Allowance	32AD	Not allowed
Tea, Coffee, Rubber Manufacturing Companies	33AB	Not allowed
Site Restoration Fund Deposits	33ABA	Not allowed
Scientific Research Expenditure	35	Not allowed
Capital Expenditure for Specified Business	35AD	Not allowed
Agriculture Extension Projects	35CCC	Not allowed
Skill Development Projects	35CCD	Not allowed
Chapter VI-A Deductions	80IA, 80IAB, 80IAC, 80IB, etc.	Not allowed except 80JJAA and 80M.
Set-off of Losses	Earlier Years	Not allowed for losses and depreciation linked to the above deductions.
Amalgamated Company Losses	Carried forward	Not allowed if linked to the above deductions.
Accelerated Depreciation	General	Not allowed (Normal depreciation is allowed)
Option Irrevocable	Form 10-IC	The choice must be made before the due date and is not revocable.
Filing Deadline	General	On or before the ITR due date (Usually 30th September).
Turnover Restriction	General	No restriction. Any existing company can opt.

From the above-mentioned table, you can easily understand the deductions that are restricted under Section 115BAA. If you understand these limits, then your company can ensure compliance with the tax provisions.

Domestic Companies Income Tax Rates In India

Also Read - Section 115 BBE of Income Tax Act – Tax on Unexplained Income

Domestic companies in India are taxed at different rates. It depends on their turnover, sector, and the tax regime they choose. The following table highlights the different income tax rate options available for the companies:

Applicable Condition for Domestic Companies	Tax Rate (Excluding Cess and Surcharge)
If turnover or gross receipts in the previous year do not exceed ₹400 crores.	25%
Manufacturing companies opting under Section 115BA.	25%
Firms opting for the reduced tax structure available in Section 115BAA.	22%
New manufacturing companies opting under Section 115BAB.	15%
Any other domestic companies not covered above.	30%

The above-mentioned rates give companies the flexibility to select a suitable tax regime. Such concessional rules are aimed at encouraging manufacturing, reducing compliance load, and improving India’s business environment.

Conclusion

Domestic companies in India can choose a concessional tax framework under Section 115BAA. This provision lets them pay tax at a flat rate of 22%, excluding surcharge and cess. A 10% surcharge and 4% cess apply additionally.

Section 115BAA simplifies compliance and helps companies concentrate on growth instead of complicated tax planning. However, companies should carefully consider the limitations, such as restricted deductions and exemptions, before opting for this regime.

FAQs

1. Who is eligible for section 115BAC?

An individual or a Hindu Undivided Family (HUF), who has income other than business or professional income, can opt for Section 115BAC.

2. Does opting for Section 115BAA affect dividend distribution tax (DDT)?

No, dividend distribution tax (DDT) rules remain unaffected by Section 115BAA.

3. Do companies need board approval before opting for Section 115BAA?

Legally, no. But many companies get board approval to maintain governance and record-keeping.

4. Is HRA allowed under 115BAC?

No, you cannot claim HRA exemption if taxed as per Section 115BAC.

5. Does opting for Section 115BAA impact tax audits?

No, the usual audit requirements under the Act continue unchanged.

6. How to calculate MAT credit?

MAT is calculated at 15% of book profit (plus cess and surcharge). The company compares this with tax under normal provisions, and the higher amount becomes the actual tax payable.

7. Does Section 115BAA apply to companies under liquidation?

No, it applies only to going-concern domestic companies that file a regular return of income.

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Income Tax Slab for Female Taxpayers in FY 2025–26	Section 37 of the Income Tax Act	Section 10AA of the Income Tax Act	What is Toll Tax
Gratuity Tax Exemption under the Income Tax Act	GVMC Water Tax	National Pension Scheme Tax Benefits	Section 28 of the Income Tax Act
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