Section 200 · Special cases
Section 200 of the Income-tax Act, 2025 — 22% Concessional Tax Rate for Domestic Companies (Old Section 115BAA)
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter XIII
📜 What the law says — Section 200, Income-tax Act 2025
200. (1) Irrespective of anything contained in this Act but subject to the provisions
of Parts A, B, E and this Part (other than sections 199 and 201) of this
Chapter, the income-tax payable for a tax year shall be at the rate of 22%, at the
option of a person being a domestic company, in respect of the total income of such
person computed in the following manner:—
(a) without any deduction under—
(i) section 45(2) or 47(1)(b); or
(ii) Chapter VIII other than provisions of section 146 or 148; or
(iii) sections specified in section 205(1)(a) to (g);
(b) without set off of any loss carried forward or depreciation from any
earlier tax year, if such loss or depreciation is attributable to any of the
deductions referred to in clause (a);
(c) without set off of any loss or allowance for unabsorbed depreciation
deemed so under section 116, if such loss or depreciation is attributable
to any of the deductions referred to in clause (a).
(2) Where the person fails to satisfy the requirements contained in sub-section (1)
in any tax year, the option shall become invalid in respect of the said tax year and
subsequent years and other provisions of the Act shall apply, as if the option had
not been exercised for such tax year and for subsequent years.
(3) The loss and depreciation referred to in sub-section (1)(b) and (c) shall be
deemed to have been given full effect to and no further deduction for such loss or
depreciation shall be allowed for any subsequent year.
(4) In case of a person, having a Unit in the International Financial Services Centre,
which has exercised option under sub-section (5), the requirements contained in
sub-section (1) shall be modified to the extent that the deduction as referred to in
section 147 shall be available to such Unit subject to fulfilment of the conditions
contained in that section.
(5) The provisions of this section shall not apply unless the option is exercised by
the person in such manner as may be prescribed on or before the due date speci-
fied under section 263(1)for furnishing the return of income and such option once
exercised, shall apply to subsequent tax years.
(6) Once the option under this section has been exercised for any tax year, it shall
not be subsequently withdrawn for the same or any other tax year.
(7) In case of a person, being a domestic company, where the option exercised by
it under section 201, h
In plain language
What Section 200 is all about
Section 200 of the Income-tax Act, 2025 (effective from 1 April 2026, for Tax Year 2026-27 onwards) gives every domestic company the option to pay income tax at a flat 22% instead of the normal corporate rates of 25% or 30%. It is the new avatar of the hugely popular Section 115BAA of the Income-tax Act, 1961, introduced in September 2019 to make Indian corporate tax rates globally competitive. After adding a flat 10% surcharge and 4% health and education cess, the effective tax rate works out to 25.168% — regardless of how large the company's income is.
Who can opt for it
- Any domestic company — private limited, public limited, listed or unlisted. There is no turnover limit, no restriction on the nature of business, and no cut-off date of incorporation.
- Foreign companies, LLPs, firms and individuals cannot use Section 200. (Resident co-operative societies have their own parallel options in Sections 203 and 204.)
- A company whose 15% new-manufacturing option under Section 201 (old Section 115BAB) becomes invalid due to violation of conditions under Section 205(2) can fall back and opt for Section 200 instead — Section 200(7).
The trade-off: give up incentives, get a lower rate
The 22% rate is not free. Under Section 200(1) read with Section 205, total income must be computed without claiming:
- Additional depreciation and similar investment-linked allowances (Section 33(8) of the 2025 Act, corresponding to old Section 32(1)(iia));
- Deductions listed in Section 205(1)(a) to (g) — broadly the successors of the old tea/coffee/rubber development and site-restoration deposits (33AB/33ABA), weighted scientific-research deductions (old Section 35 family), capital expenditure on specified businesses (old 35AD) and agricultural-extension/skill-development spends (old 35CCC/35CCD), along with the SEZ-type exemption referred to in Section 144;
- Chapter VIII deductions (the successor of Chapter VI-A) — except Section 146 (deduction for employment of new employees, old Section 80JJAA) and Section 148 (deduction for inter-corporate dividends, old Section 80M), which remain fully available;
- Brought-forward losses and unabsorbed depreciation to the extent they are attributable to the deductions listed above — Section 200(3) deems such losses to have been given "full effect", so they lapse permanently;
- Set-off of deemed unabsorbed depreciation under Section 116(1) arising on amalgamation-type situations.
What stays intact: normal depreciation, IFSC-unit deduction under Section 147 (old 80LA) for units in an International Financial Services Centre — expressly preserved by Section 200(4) — and ordinary business losses not linked to the forgone incentives.
The biggest sweetener — no MAT
Under Section 206 of the 2025 Act, Minimum Alternate Tax (15% of book profit) does not apply to a company that has exercised the Section 200 option. The flip side: any accumulated MAT credit lapses and cannot be set off, so companies sitting on large MAT credit should exhaust it before switching.
How and when to exercise the option
- The option must be exercised in the prescribed manner on or before the due date for filing the return under Section 263(1) — Section 200(5). (Under the 1961 regime this was done electronically in Form 10-IC; a corresponding form is prescribed under the new rules.)
- Once exercised, it applies to that tax year and all subsequent years, and under Section 200(6) it cannot be withdrawn — ever.
- If the company violates the conditions in any later year, Section 200(2) makes the option invalid for that year and all following years, pushing the company back to the normal regime permanently.
Practical implications
- For most companies with few incentive claims, Section 200 is a clear winner — 25.17% versus up to 34.94% under the normal 30% slab with 12% surcharge.
- Companies with large unexpired 35AD-type claims, SEZ benefits or accumulated MAT credit should run the numbers over 3–5 years before opting, because the election is irreversible.
- Brand-new manufacturing companies should first test eligibility for the even lower 15% rate under Section 201 before settling for Section 200.
💡 Example
Example 1 — plain vanilla trading company: Sharda Distributors Pvt Ltd has taxable income of ₹10 crore in TY 2026-27 and claims no special incentives. Under Section 200: tax = 22% × ₹10 crore = ₹2.20 crore; add 10% surcharge = ₹2.42 crore; add 4% cess = ₹2.5168 crore (25.168%). Under the normal 30% regime: ₹3 crore + 7% surcharge (income between ₹1–10 crore) = ₹3.21 crore + 4% cess = ₹3.3384 crore. Section 200 saves about ₹82.16 lakh every year.
Example 2 — company with incentives: Meru Agro Ltd earns ₹5 crore before claiming ₹1.5 crore of additional depreciation and a ₹50 lakh Chapter VIII deduction. Normal regime: taxable income ₹3 crore, tax at 30% + 7% surcharge + 4% cess ≈ ₹1.0015 crore. Section 200: both claims are forgone, so taxable income stays ₹5 crore and tax = 25.168% × ₹5 crore = ₹1.2584 crore. Here the normal regime is cheaper by about ₹25.7 lakh — Meru should wait until its incentive claims are exhausted before opting, since the option can never be reversed.
A short story: Ramesh runs a mid-sized garment company in Jaipur. His CA showed him two columns on one sheet: with old-regime deductions his effective rate was 29%, and under Section 200 it would be a flat 25.17% — plus no MAT headache on his book profits. His only worry was ₹40 lakh of MAT credit lying unused. They planned it smartly: he used up the MAT credit over two years under the normal regime, then filed the option before his return due date and locked in the 22% rate from the third year. One irreversible tick-box, planned right, now saves him over ₹30 lakh a year.
| Particulars | Normal regime (small co.) | Normal regime (other co.) | Section 200 (old 115BAA) | Section 201 (old 115BAB) |
|---|
| Base tax rate | 25% (turnover ≤ ₹400 crore) | 30% | 22% | 15% (new manufacturing cos.) |
| Surcharge | 7% / 12% (income > ₹1 cr / ₹10 cr) | 7% / 12% | Flat 10% | Flat 10% |
| Health & education cess | 4% | 4% | 4% | 4% |
| Maximum effective rate | 29.12% | 34.94% | 25.168% | 17.16% |
| MAT (Section 206) | Applies @15% of book profit | Applies @15% | Not applicable | Not applicable |
| Incentive deductions | All available | All available | Forgone (except Sections 146 & 148) | Forgone + strict manufacturing conditions |
| Option reversible? | — | — | No, irrevocable once exercised | No, irrevocable |
Related sections
Section 199 — Tax on income of certain domestic manufacturing companies (old 115BA) Section 201 — 15% tax on new domestic manufacturing companies (old 115BAB) Section 205 — Conditions for concessional tax on companies and co-operative societies Section 206 — Minimum Alternate Tax and AMT (old 115JB/115JC) Section 146 — Deduction for employment of new employees (old 80JJAA) Section 263 — Return of income and due dates (old 139)
Frequently asked questions
Which section of the old Income-tax Act, 1961 does Section 200 replace?
Section 200 of the Income-tax Act, 2025 corresponds to Section 115BAA of the 1961 Act — the optional 22% concessional tax regime for domestic companies introduced in September 2019. The substance is essentially unchanged in the new Act.
What is the effective tax rate under Section 200?
The base rate is 22%, plus a flat 10% surcharge and 4% health and education cess, giving an effective rate of 25.168% irrespective of the level of income.
Can a company opt out of Section 200 later if it becomes unfavourable?
No. Under Section 200(6), once the option is exercised it cannot be withdrawn for the same or any other tax year. If conditions are violated, the option becomes invalid for that year and all subsequent years under Section 200(2).
Does MAT apply to a company that opts for Section 200?
No. Section 206 of the 2025 Act expressly excludes companies that have exercised the Section 200 option from Minimum Alternate Tax. However, any accumulated MAT credit lapses and cannot be used after opting.
Which deductions can a Section 200 company still claim?
It can claim normal depreciation, the deduction for employment of new employees under Section 146 (old 80JJAA), the inter-corporate dividend deduction under Section 148 (old 80M), and IFSC-unit deduction under Section 147 where applicable per Section 200(4).
Is there any turnover limit or incorporation date condition for Section 200?
No. Unlike Section 201 (which is only for new manufacturing companies) there is no turnover ceiling, no incorporation cut-off and no restriction on the nature of business — any domestic company can opt.
By when must the option be exercised?
The option must be exercised in the prescribed manner on or before the due date for furnishing the return of income under Section 263(1) for the relevant tax year; it then applies automatically to all subsequent years.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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