Company Tax Rates: 115BAA vs 115BAB vs Regular

A note on the law: section numbers here are from the Income tax Act, 1961, the operative law for the current filing cycle. The Income tax Act, 2025 renumbers these provisions from returns filed for Tax Year 2026-27 onward. 115BAA becomes Section 200, 115BAB becomes Section 201. This article is for general information and does not constitute tax advice.

The three options

Regime	Base rate	Who it’s for	Surcharge
Regular	30% (25% if turnover in the relevant prior year was 400 crore rupees or less)	Default, no election needed	7% above 1 crore rupees income, 12% above 10 crore rupees
Section 115BAA	22%	Any existing domestic company, giving up specified exemptions and incentive deductions	Flat 10%, regardless of income — but 25% for a business trust SPV, see below
Section 115BAB	15%	New manufacturing companies only, incorporated on or after 1 October 2019, meeting strict conditions	Flat 10%, regardless of income — but 25% for a business trust SPV, see below

Health and education cess of 4% applies on top of tax plus surcharge under all three.

New from August 2026: a much higher surcharge for business trust SPVs. The Taxation and Other Laws (Amendment) Act, 2026, which received assent on 17 August 2026 and applies from 1 April 2026, split the surcharge table for companies taxed under the concessional regime. An ordinary domestic company continues at a flat 10%. A company that is a special purpose vehicle of a business trust, meaning a REIT or InvIT SPV, pays 25%. The trade-off is that its unit holders keep their dividend exemption, which they would otherwise have lost on the SPV switching regimes. If you are modelling an SPV’s regime choice, use 25% and not the 10% figure that applies to companies generally. Details in Business Trust Capital Gains (115UA).

Worth noticing on the ordinary numbers: the flat 10% surcharge is actually higher than the regular regime’s 7% band for companies with income between 1 crore and 10 crore rupees. The much lower base rate overwhelms that in nearly every real case, but it’s not purely a one-way win on every line of the calculation, it’s the base rate doing the heavy lifting.

Section 115BAA: what you give up for 22%

Available to any domestic company, new or existing, provided it does not claim:

• Section 10AA (SEZ unit profit exemption)
• Additional depreciation under Section 32(1)(iia)
• Section 35AD (specified capital expenditure deduction)
• Most Chapter VI-A profit-linked deductions

Brought-forward losses and unabsorbed depreciation attributable to these foregone items are treated as already allowed and cannot be carried forward once the option is exercised, that portion of the loss is simply gone.

MAT does not apply to a company on 115BAA. The option must be exercised on or before the due date for filing that year’s return, and once exercised it’s irrevocable, the company cannot go back to the regular regime in a later year.

Section 115BAB: 15% for new manufacturing companies

The stricter of the two concessional regimes, available only if all of the following hold:

• Company incorporated on or after 1 October 2019
• Manufacturing or production commenced on or before 31 March 2024, this is the single fact that determines whether a company qualifies at all
• Company is genuinely new, not formed by splitting or reconstructing an existing business
• Plant and machinery is predominantly new, up to 20% of total value can be previously used, imported second-hand machinery never used in India is treated as new
• Business is confined to manufacturing or production, not trading or other excluded activities

The window has closed for new entrants. The commencement deadline was extended once, from 31 March 2023 to 31 March 2024, and was not extended again. The Finance Act 2026 made no further extension, and Section 201 of the Income tax Act, 2025 carries the same 31 March 2024 cut-off forward. A company that commenced manufacturing on or before that date and elected in time continues to pay 15%, but no company can newly qualify. Guides published during 2026 that describe the regime as open to new manufacturers are working from stale content.

Election is made before the due date of the first return of income, and is irrevocable once made. Like 115BAA, MAT doesn’t apply, and specified exemptions and incentive deductions are given up in exchange for the rate.

How the election is made has changed. Under the 1961 Act the option required a separate form filed in advance, Form 10-IC for 115BAA and Form 10-ID for 115BAB. Under the Income tax Rules, 2025 that separate filing is done away with, and the option is exercised in the return of income itself. For the current filing cycle the old forms still govern, check which year you are electing for before assuming either position.

Illustrative comparison

A company with 10 crore rupees taxable income, entirely eligible for 115BAB, and not a business trust SPV:

Regime	Base tax	Surcharge	Cess	Total
115BAB (15%)	1.50 crore rupees	15 lakh rupees (10%)	6.6 lakh rupees	1.716 crore rupees
115BAA (22%)	2.20 crore rupees	22 lakh rupees (10%)	9.68 lakh rupees	2.517 crore rupees
Regular (25%)	2.50 crore rupees	17.5 lakh rupees (7%)	10.7 lakh rupees	2.782 crore rupees

The gap between 115BAB and the regular regime here is over 1 crore rupees, on 10 crore rupees of income, which is why manufacturers already inside the regime stay in it. For anyone not already in, the comparison that matters is 115BAA against the regular regime. For a business trust SPV the 25% surcharge changes these figures materially and the comparison has to be run again on that basis.

MAT, for companies that stay on the regular regime

A company on the regular 30%/25% regime isn’t guaranteed to actually pay that rate. If the tax computed normally comes out lower than 15% of book profit, computed under Section 115JB from the Companies Act financial statements with specific adjustments, the company pays the MAT figure instead, whichever of the two is higher. A CA-certified report in Form 29B is mandatory wherever MAT applies.

The rate falls to 14% from Tax Year 2026-27. Section 206 of the Income tax Act, 2025 sets MAT at 14% of book profit, and 9% for a company that is an IFSC unit deriving its income solely in convertible foreign exchange. The Act as originally passed read 15%; the Finance Act 2026 substituted 14% with effect from 1 April 2026. Commentary still quoting 15% for Tax Year 2026-27 is reading the unamended text.

The rate cut came at a price: MAT credit is going away. Under the 1961 Act, excess MAT paid over regular tax became MAT credit, carried forward fifteen years. The Income tax Act, 2025 carries no equivalent, the credit clauses of Section 206(1) stand omitted. For a company that stays on the regular regime from Tax Year 2026-27, MAT paid at 14% is a final cost, with nothing to carry forward against a better year. MAT was previously a timing difference, and is now an absolute one.

Credit already accumulated is preserved, but only in two defined cases. Sub-sections (3) and (4) of Section 206 deal exclusively with credit standing under Section 115JAA of the 1961 Act as on 31 March 2026:

• A domestic company that has opted into 115BAA or 115BAB may set that legacy credit off against up to 25% of the tax payable for the year, carrying the remainder forward, but not beyond the fifteenth tax year after the credit first became allowable.
• A foreign company may carry the legacy credit forward and set it off in a year where normal tax exceeds MAT, limited to that difference, under the same fifteen-year outer limit.

This is a genuine improvement on the old position for anyone switching. Previously, opting into 115BAA or 115BAB meant accumulated MAT credit lapsed permanently the moment the option was exercised, per CBDT Circular 29/2019. A company weighing the switch no longer has to choose between the lower rate and its existing credit balance, it keeps both, just at a slower pace of using the credit. One carve-out to watch: on conversion of a private or unlisted public company into an LLP, the successor LLP does not inherit this treatment.

Non-corporate taxpayers come out of this very differently. Alternate minimum tax keeps its credit mechanism intact, with the full fifteen-year carry-forward, so an LLP or firm paying AMT is in a materially better position than a company paying MAT. The comparison is drawn out in MAT vs AMT: Which Applies to You.

What the shareholder pays is a separate question

Everything above is the company’s own bill. What a shareholder receives out of those profits is taxed again, separately, in the shareholder’s hands. Both streams are covered in their own right: Dividend Taxation and Buyback of Shares: Taxation.