In an era where tax efficiency plays a crucial role in corporate decision-making, the choice between the normal taxation regime and the concessional regime under Section 115BAA of the Income Tax Act, 1961 has become an important consideration for domestic companies. The reduced tax rate offered under Section 115BAA promises tax savings, yet the relinquishment of various deductions and incentives influences its overall benefit. The table below presents a comparative analysis of both regimes, highlighting their key points concisely, to assist Chartered Accountants, Tax Professionals and stakeholders alike in determining the most suitable tax framework for their businesses.
| Normal Taxation for Companies | Taxation under Section 115BAA | ||||||||
| Applicable on all types of companies |
Applicable only on domestic companies (including public, private, listed or unlisted) |
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| All incentives and deductions allowed as per Income Tax Act, 1961 |
Deductions under Sections 10AA, 32(1)(iia), 32AD, 33AB, 33ABA, 35(1)(ii), 35(1)(iia), 35(1)(iii), 35(2AA), 35(2AB), 35AD, 35CCC, 35CCD or under any provisions of Chapter VI-A not allowed (Section 80JJAA & 80M – allowed) |
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| All Depreciation and Losses allowed to be set off and Carried Forward |
Depreciation & Losses of previous and current period allowed to be set off and Carried Forward except the Depreciation and Losses risen due to the deductions mentioned before |
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(When Base Tax Rate is 25%) |
Flat Taxation @ 25.17%
(22% + 10% Surcharge + 4% H.E.C.) |
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| MAT Provisions applicable | MAT Not applicable and Previous MAT Credits shall Lapse | ||||||||
| Inherent and Default System | Filing Form 10-IC within due date of ITR required & once opted, it cannot be withdrawn for subsequent years |
The Section 115BAA of the Income Tax Act, 1961 corresponds to Section 200 of the Income Tax Act, 2025. In essence, both the sections divulge the same meaning in totality.
While the comparative features above provide a conceptual understanding, the following illustration highlights the practical tax outcomes under each regime:
Textiles Company named XYZ Ltd. being assessed for Financial Year 2025-26:
- Book Profit = Rs.2,30,73,429/-
- Business Income = Rs.8,74,004/-
- Sale Consideration of Listed Shares = Rs.2,32,00,000/-
- Cost of Acquisition of Listed Shares (acquired in 2021) = Rs.1,34,75,000/-
- Long Term Capital Gain on Sale of Listed Shares = Rs.97,25,000/-
- Advance Tax & TDS = Rs.16,54,000/-
All figures in the computation below are rounded off for convenience.
NORMAL TAXATION REGIME:
| Particulars | Amount (Rs.) |
| Normal Tax @ 25% of Rs.8,74,004/- | 2,18,501 |
| Special Tax @ 12.5% of Rs.97,25,000/- | 12,15,625 |
| Total Tax (A) | 14,34,126 |
Computation under Section 115JB for MAT:
| Particulars | Amount (Rs.) |
| Book Profit | 2,30,73,429 |
| 15% of Book Profit (B) | 34,61,014 |
| Tax Payable (A or B whichever is higher) | 34,61,014 |
| MAT becomes payable because MAT liability exceeds normal tax liability. | |
| Surcharge @ 7% | 2,42,271 |
| 37,03,285 | |
| Health & Education Cess @ 4% | 1,48,131 |
| 38,51,416 | |
| Less: Advance Tax & TDS | 16,54,000 |
| Tax Payable under Normal Taxation Regime | 21,97,416 |
| (Interest to be computed separately) |
TAXATION UNDER SECTION 115BAA:
| Particulars | Amount (Rs.) |
| Normal Tax @ 22% of Rs.8,74,004/- | 1,92,281 |
| Special Tax @ 12.5% of Rs.97,25,000/- | 12,15,625 |
| Total Tax | 14,07,906 |
| Surcharge @ 10% | 1,40,791 |
| 15,48,697 | |
| Health & Education Cess @ 4% | 61,948 |
| 16,10,645 | |
| Less: Advance Tax & TDS | 16,54,000 |
| Tax Refundable under Section 115BAA | 43,355 |
| (Interest to be computed separately) |
In the case reproduced as above, taxation under Section 115BAA proves to be substantially more tax-efficient than the normal taxation regime, primarily due to the non-applicability of MAT.
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