Section 199 of the Income-tax Act, 2025 — Tax on Income of Certain Manufacturing Domestic Companies (25% Concessional Rate)

In plain language

Section 199 of the Income-tax Act, 2025 gives certain domestic manufacturing companies the option to pay income-tax at a flat concessional rate of 25% (plus applicable surcharge and cess) instead of the normal corporate rate. It is the new-law successor of Section 115BA of the Income-tax Act, 1961, carried into the 2025 Act with the same substance but simpler drafting. The provision applies from tax year 2026-27 onwards (the 2025 Act is effective from 1 April 2026).

What Section 199 means in plain English

Normally, a domestic company pays tax at the rate set by the annual Finance Act, and can claim a wide menu of profit-linked deductions and incentives. Section 199 offers a trade: a lower, locked-in 25% rate in exchange for giving up specified incentives and deductions. The company chooses; the law does not force it. Once chosen, the option is essentially permanent — the only exit route is migrating to the even simpler 22% regime under Section 200.

Who can opt for Section 199

• Only a domestic company — foreign companies, LLPs, firms and individuals are not covered.
• Set-up and registered on or after 1 March 2016 — older companies cannot use this section.
• Engaged only in manufacturing or production of any article or thing, and research in relation to, or distribution of, such article or thing manufactured by it. A company doing trading, services or other unrelated business alongside is disqualified because the engagement must be exclusive.

Key conditions — what you must give up

Under Section 199(1), total income must be computed without claiming:

• Deductions listed in Section 205(1)(a) to (g) — broadly the incentive deductions such as SEZ-type benefits, additional depreciation, investment allowances, tea/coffee/rubber and site-restoration deposits, weighted scientific-research deductions, specified-business capital expenditure and agricultural extension/skill development deductions (the 2025-Act counterparts of Sections 10AA, 32(1)(iia), 32AD, 33AB, 33ABA, 35, 35AD, 35CCC etc. of the 1961 Act);
• Deductions under Chapter VIII-C (the successor of Chapter VI-A "heading C" income-based deductions), except Section 146, which is the deduction for additional employee cost (old Section 80JJAA) — this one remains available;
• Specified capital-gains related deductions referred to in Sections 45(2)(c) and 47(1)(b) of the 2025 Act;
• Set-off of brought-forward losses to the extent such losses are attributable to the prohibited deductions above. Section 199(2) deems such losses to have been given full effect, so they lapse permanently.

How and when to exercise the option

• Timing: the option must be exercised in the prescribed manner on or before the due date under Section 263(1) for furnishing the first return of income for which the company wants the benefit (under the 1961 Act this was done through Form 10-IB; the corresponding form under the 2025 Act will be notified in the rules).
• Irrevocable: per Section 199(4), once exercised the option cannot be withdrawn for that or any later tax year — except that the company may later shift to the Section 200 regime (22%, old Section 115BAA). It can never shift back.

Interaction with related sections and MAT

• Section 200 (old 115BAA): 22% rate with a similar give-up of incentives but no MAT. A Section 199 company can migrate to Section 200 at any time.
• Section 201 (old 115BAB): 15% rate for new manufacturing companies incorporated on or after 1 October 2019 that commenced manufacturing by the statutory deadline — a far better deal where available.
• MAT applies: unlike Sections 200 and 201, a company under Section 199 remains liable to Minimum Alternate Tax on book profits (15% under the 1961-Act framework, continued under the 2025 Act), and can carry forward MAT credit.
• Normal surcharge applies: 7% where total income exceeds ₹1 crore and 12% where it exceeds ₹10 crore, plus 4% health and education cess — not the flat 10% surcharge of Sections 200/201.

Practical implications — should a company opt in?

Honestly, Section 199 today is a niche regime. Since Section 200 offers 22% with no MAT to every domestic company, and Section 201 offers 15% to new manufacturers, Section 199's 25% rate is attractive mainly to a manufacturing company that (a) is not eligible for the 15% regime and (b) still has large brought-forward losses, unabsorbed additional depreciation or MAT credit it wants to use up before locking into Section 200. Many companies deliberately stay on the normal regime or Section 199 for a few years to exhaust these attributes, then migrate to Section 200 permanently. Always run the numbers for both paths over a 3–5 year horizon before exercising the option, because the lapse of incentive-linked losses under Section 199(2) is permanent.