Section 115BAA (22%) & 115BAB (15%), when to opt in.

Three regimes for Indian domestic companies as of FY 2025-26:

1. Standard regime:

• Rate: 25% (if turnover up to INR 400 crore in FY preceding by 2) or 30% (above).
• Full access to all deductions, carry-forward losses, Section 80 benefits.
• MAT applies at 15%.

2. Section 115BAA (concessional for any domestic company):

• Rate: 22% + 10% surcharge + 4% cess = effective ~25.17%.
• No MAT applies.
• Specific deductions FORFEITED (see below).
• One-time election by filing Form 10-IC on or before due date for ITR of the FY of election. Irrevocable.

3. Section 115BAB (concessional for NEW manufacturing company):

• Rate: 15% + 10% surcharge + 4% cess = effective ~17.16%.
• No MAT.
• Available only for new manufacturing companies incorporated on or after 1 October 2019 and commencing production on or before 31 March 2024 (deadline extended for specific sectors).
• Form 10-ID election. Irrevocable.

To opt into Section 115BAA, the company must NOT claim:

• Section 10AA (SEZ unit deduction).
• Section 32(1)(iia) (additional depreciation 20% in year 1).
• Section 32AD (investment allowance).
• Section 33AB (Tea/Coffee/Rubber Development Account).
• Section 33ABA (Site Restoration Fund).
• Section 35(1)(ii) / (iia) / (iii) (donations for scientific research).
• Section 35(2AA) / (2AB) (approved research deduction).
• Section 35AD (investment-linked deduction).
• Section 35CCC / 35CCD (agricultural extension / skill dev projects).
• Chapter VI-A deductions except Section 80JJAA (new employment) and Section 80M (inter-corporate dividend).
• Carry-forward of losses related to the forfeited deductions.

For most companies (that are NOT SEZ-based, not heavy on scientific research, not operating in specified sectors), the forfeited deductions are minimal. Section 115BAA's 22% beats the standard 25%/30% in nearly every case for non-specialist companies.

Section 115BAB applies only if the company meets ALL conditions:

• Set up and registered on or after 1 October 2019.
• Commences manufacturing or production on or before 31 March 2024 (date extended for specific sectors; verify current state).
• Not formed by splitting up or reconstruction of an existing business.
• Does not use plant and machinery previously used in India (second-hand > 20% threshold triggers disqualification).
• Does not use building previously used as a hotel or convention centre.
• Engaged in manufacturing or production of article or thing. NOT engaged in: generating electricity (specific exception), mining, software development (controversial, see 2022 clarifications), book printing, re-labelling / packing.
• Same forfeited-deductions list as 115BAA plus more restrictive.

Transfer pricing with related parties: any related-party transaction at non-arm's-length pricing can trigger disqualification of 115BAB election.

For most domestic companies: Section 115BAA (22%) is the default best choice. The forfeited deductions are not meaningful for most businesses; the 3-8 percentage-point saving vs 25%/30% is real.

Exception - stay on standard regime if:

• You have significant SEZ Section 10AA deduction (reduces to zero under 115BAA).
• You have large carry-forward losses from prior years that would be forfeited.
• You have substantial Section 35 scientific research deductions.
• You are a research-driven pharma / biotech company with Section 35(2AB) in-house R&D deduction.

Opt into Section 115BAB if:

• You are a new manufacturing company (post-Oct-2019 incorporation).
• You will commence production by the deadline.
• You are confident of meeting all substantive conditions (not reconstruction, no prior plant & machinery, pure manufacturing).

Irrevocable election: once opted into 115BAA or 115BAB, cannot revert to standard regime. Think carefully.

Last updated: 2026-10-12.