Section 115BA: 25% Income Tax for Eligible Domestic Manufacturing Companies
Section 115BA of the Income-tax Act, 1961 provided an optional 25% corporate income-tax rate to qualifying domestic manufacturing companies. From 1 April 2026, the corresponding provision is Section 199 of the Income-tax Act, 2025.
What is Section 115BA?
Section 115BA was introduced by the Finance Act, 2016, with effect from assessment year 2017-18. It allowed a domestic company meeting prescribed manufacturing and deduction conditions to elect a 25% base income-tax rate instead of the otherwise applicable corporate rate.
A domestic company, for the purposes of the 1961 Act, generally means an Indian company or another company satisfying the statutory arrangements for declaration and payment of dividends in India under Section 2(22A). A company does not qualify merely because it earns manufacturing-related revenue: its registration date, business activities and income computation must also satisfy the provision.
Under the Income-tax Act, 2025, Section 199, titled Tax on income of certain manufacturing domestic companies, continues a conditional 25% option. Its internal cross-references and filing provisions have been renumbered and should be applied for tax years beginning on or after 1 April 2026.
Eligibility conditions for the 25% rate
1. Date of setting up and registration
The domestic company must have been set up and registered on or after 1 March 2016. This is a statutory eligibility condition, not a general 25% rate available to every domestic company.
2. Permitted business
The company must not engage in a business other than manufacture or production of an article or thing and research relating to, or distribution of, the article or thing manufactured or produced by it. Whether a particular activity qualifies depends on its actual nature and the statutory requirements.
3. Income computed without specified tax incentives
The company must forgo specified deductions and allowances. Under the 1961 Act these include, among others, Section 10AA, additional depreciation under Section 32(1)(iia), specified investment and research deductions, and specified income-linked Chapter VI-A deductions. Section 80JJAA is an important permitted exception under the relevant provisions.
Disallowed deductions, carried-forward losses and depreciation
- Specified exemptions and incentives: The company cannot use the deductions expressly excluded by Section 115BA(2)(c)(i).
- Losses: A carried-forward loss attributable to those prohibited deductions cannot be set off. The statute treats the affected loss as already given full effect, preventing later use.
- Depreciation: Ordinary depreciation may be claimed subject to the prescribed method, but the excluded additional depreciation benefit is unavailable.
- Other deductions: Not every deduction is automatically prohibited. The precise exclusions and exceptions must be checked against the applicable assessment or tax year.
Under Section 199(1)(c) of the 2025 Act, the equivalent restrictions refer to Sections 45(2), 47(1)(b), specified provisions identified through Section 205(1)(a) to (g), and Chapter VIII-C except Section 146. The revised cross-references should not be confused with the numbering in the 1961 Act.
How to exercise the option
For returns governed by the Income-tax Act, 1961, the company was required to exercise the option in the prescribed manner, generally by filing Form 10-IB electronically on or before the due date for furnishing its first relevant income-tax return under Section 139(1). An option validly exercised continues for subsequent years.
Under Section 199(3) of the Income-tax Act, 2025, the option must be exercised in the prescribed manner by the return-filing due date under Section 263(1). Under Section 199(4), the option generally cannot be withdrawn, but the provision expressly permits movement to the option under Section 200, subject to its conditions.
For procedural instructions and forms, use the Income Tax e-Filing Portal and the applicable rules for the tax year concerned.
Tax rates, surcharge, cess and minimum alternate tax
| Corporate regime | Base rate | Key point |
|---|---|---|
| Section 115BA (1961 Act) / Section 199 (2025 Act) | 25% | Specified manufacturing domestic companies, subject to conditions |
| Section 115BAA (1961 Act) | 22% | Optional regime with its own restrictions and 10% surcharge |
| Section 115BAB (1961 Act) | 15% | Qualifying new manufacturing companies; other categories of income may have different treatment |
For assessment year 2026-27, the Income Tax Department lists the Section 115BA rate at 25%, with surcharge generally at 7% where total income exceeds Rs. 1 crore but does not exceed Rs. 10 crore, and 12% where it exceeds Rs. 10 crore, subject to applicable rules and relief. Health and Education Cess is 4% of income tax plus surcharge.
Minimum Alternate Tax (MAT): A company under Section 115BA remains subject to MAT provisions where applicable. This differs from companies validly opting for Sections 115BAA or 115BAB, which are generally excluded from MAT. The MAT computation must be considered separately from the 25% normal tax rate.
Illustrative tax calculation
Assume an eligible manufacturing company has taxable total income of Rs. 80 lakh, no separately taxed income, and no surcharge liability. The base tax at 25% is Rs. 20 lakh; 4% cess is Rs. 80,000; and total tax is Rs. 20.80 lakh, before credits, interest, adjustments or any applicable MAT impact.
This simplified example is illustrative only. A real computation must account for the relevant year's law, special-rate income, tax credits, MAT and other applicable adjustments.
Frequently asked questions
Is Section 115BA available to every domestic company?
No. The company must satisfy the date, manufacturing-business and income-computation conditions and validly elect the regime.
Can a company switch from Section 115BA to Section 115BAA?
Under the 1961 Act, a qualifying company may opt for the Section 115BAA regime subject to the relevant statutory conditions. Section 199(4) of the 2025 Act similarly contains an express exception permitting an option under Section 200.
Does the 25% rate include cess and surcharge?
No. The stated 25% is the base rate; surcharge and cess are additional where applicable.
Official legislation and guidance
- Income Tax Department: Section 115BA, Income-tax Act, 1961
- Income Tax Department: Domestic company tax rates
- Income Tax Department: Tax rates and computation, including Section 115BA
- Income Tax e-Filing Portal: Domestic company return and rates
- Income Tax Department: Legislation and official resources
Legal information updated 26 October 2026. The applicable assessment year or tax year, amendments, rules and notifications should be verified before filing or taking a tax position.