Special Tax Regimes: Individuals, HUF, AOP, BOI, AJP, Companies & Co-operatives

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The Income Tax Act provides various special tax regimes allowing eligible taxpayers to pay tax at lower rates, subject to specific conditions and the forfeiture of certain exemptions or deductions. These regimes are outlined under Sections 115BA to 115BAE and apply to different categories of assessees such as individuals, Hindu Undivided Families (HUFs), Associations of Persons (AOPs), Bodies of Individuals (BOIs), Artificial Juridical Persons (AJPs), domestic companies, and co-operative societies. For domestic companies, three major provisions—Sections 115BA, 115BAA, and 115BAB—allow tax rates of 25%, 22%, and 15% respectively, depending on the type and date of establishment of the company. Companies must compute income without claiming specified deductions (like SEZ benefits, additional depreciation, and scientific research deductions) to qualify. The regimes also specify the applicable surcharge rates, cess, and the manner of exercising the option through prescribed electronic forms (Forms 10-IB, 10-IC, and 10-ID). Once exercised, the option is generally irrevocable, though a company under Section 115BA may later switch to Section 115BAA. Provisions of Minimum Alternate Tax (MAT) do not apply to companies opting for Sections 115BAA and 115BAB.

For individuals, HUFs, AOPs, BOIs, and AJPs, Section 115BAC offers an alternate tax structure with simplified slab rates and the removal of most exemptions. The Finance Act, 2023 made this the default regime, applicable unless the taxpayer opts out and chooses the old regime. Under the new structure, income is taxed at progressive rates starting from nil up to ₹3,00,000 (₹4,00,000 from AY 2026-27) to 30% for income above ₹15,00,000 (₹24,00,000 from AY 2026-27). Rebate under Section 87A is available for incomes up to ₹7,00,000 (₹12,00,000 from AY 2026-27). Deductions such as HRA, LTA, and those under Chapter VI-A (except for NPS employer contribution and certain IFSC benefits) are not allowed. The surcharge and cess rates remain largely the same as the old regime, though the surcharge is capped at 25% for incomes exceeding ₹5 crores. Alternate Minimum Tax (AMT) does not apply to assessees under Section 115BAC.

Resident co-operative societies can choose between Sections 115BAD and 115BAE. Section 115BAD provides a 22% tax rate, while Section 115BAE offers a lower rate of 15% for manufacturing activities for societies set up on or after April 1, 2023, and commencing production before March 31, 2024. These regimes exclude various deductions such as SEZ benefits, additional depreciation, and specified business expenses. A 10% surcharge and 4% health and education cess apply, and AMT provisions are not applicable. Once exercised, the choice under these regimes is generally irrevocable. Overall, these special regimes aim to simplify compliance and rationalize tax rates by offering optional lower-rate structures in exchange for foregoing multiple tax incentives and exemptions.

Special Regimes for Taxation of Individuals, HUF, AOP, BOI, AJP, Companies, and Co-operative Societies

Certain assessees are allowed to opt for a lower tax rate regime subject to the fulfilment of certain conditions. These alternate tax regimes offer a lower tax rate, but certain deductions and exemptions have to be given up by the assessee. The following alternative tax regimes are available to an assessee:

(a) Section 115BA for domestic companies;

(b) Section 115BAA for domestic companies;

(d) Section 115BAC for Individuals, HUFs, AOP, BOI, or AJP;

(e) Section 115BAD for resident co-operative societies; and

(f) Section 115BAE for resident co-operative societies engaged in manufacturing

Special Tax Regimes for Domestic Companies

A domestic company is allowed to opt for any lower tax rate regimes subject to the fulfilment of certain conditions. The tax rates under these regimes vary from 15% to 25%. The rates of the surcharge shall also depend on the regime opted by the eligible domestic company. A domestic company can be taxable under any of the following tax regimes:

(a) Section 115BA

(b) Section 115BAA

Conditions to be satisfied

(a) For Section 115BA

The following conditions should be satisfied in order to avail the benefit of a lower tax rate under this provision:
The domestic company has been set up and registered on or after 01-03-2016;
The company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it;
Total income of the company has been computed without claiming specified exemptions and deductions*;
Total income of the company has been computed without set-off of losses carried forward from earlier years if such loss is attributable to any of the specified exemptions and deductions; and
Total income of the company is calculated after claiming depreciation in the prescribed manner.

(b) For Section 115BAA

The following conditions should be satisfied in order to avail the benefit of a lower tax rate under this provision:
Total income of the company has been computed without claiming specified exemptions and deductions;
Total income of the company has been computed without set-off of losses or additional depreciation carried forward from earlier years if such loss or depreciation is attributable to any of the specified exemptions and deductions; and
Total income of the company is calculated after claiming depreciation in the prescribed manner.

(c) For Section 115BAB

The following conditions should be satisfied in order to avail the benefit of a lower tax rate under this provision:

The domestic company should be set up and registered on or after 01-10-2019;
The company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it. Further, the company should commence manufacturing on or before 31-03-2024.

It is to be noted that the business of manufacture or production of any article or thing shall include the business of generation of electricity but it shall not include the following businesses:

√ development of computer software in any form or in any media;

√ mining;

√ conversion of marble blocks or similar items into slabs;

√ bottling of gas into cylinder;

√ printing of books or production of cinematograph film; or

√ Any other notified business;

The company must not be formed by splitting up or reconstruction of an existing business. However, this condition is not applicable in case of an undertaking formed as a result of re-establishment, reconstruction, or revival in accordance with the provisions of Section 33B;
The company does not use any machinery or plant previously used for any purpose. However, there are two exceptions:

i. Any plant or machinery which was used outside India shall not be treated as old machinery or plant if the following conditions are satisfied:

√ Before the date of installation by the assessee, such machinery or plant was not used in India;

√ Such machinery or plant has been imported from any country outside India; and

√ No deduction on account of depreciation has been allowed or allowable in respect of such machinery or plant before the date of installation by the assessee.

ii. The condition of not using the old machinery or plant shall be deemed to have been complied with if the value of old plant and machinery does not exceed 20% of the total value of plant and machinery;

The company does not use any building which was previously used as a hotel or a convention centre in respect of which deduction under Section 80-ID has been claimed and allowed;
Total income of the company has been computed without claiming specified exemptions and deductions;
Total income of the company has been computed without set-off of losses or additional depreciation carried forward from earlier years if such loss or depreciation is attributable to any of the specified exemptions and deductions; and
Total income of the company is calculated after claiming depreciation in the prescribed manner.

Tax Rates

For Section 115BA – Section 115BA allows a domestic company to pay income tax at the rate of 25%). The special income shall be taxable at the special rates specified in respective provisions of the Act.

For Section 115BAA – Section 115BAA allows a domestic company to pay income tax at the rate of 22%. The special income shall be taxable at the special rates specified in respective provisions of the Act.

For Section 115BAB – The applicable tax rates in the case of a domestic company opting for section 115BAB are as follows:

*Income*	*Tax Rates*
Income from manufacturing activities	15%
Income from non-manufacturing activities*	22%
Short-term capital gain from transfer of depreciable assets	15%
Short-term capital gain from transfer of non-depreciable assets	22%
Excess profit derived due to arranged affairs	30%
Special Incomes	Special tax rates
* No deduction or allowance in respect of any expenditure or allowance shall be allowed in computing such income.

Rate of surcharge and health and education cess

The tax calculated on the total income shall be further increased by the surcharge at the following rates:

Company	Range of Total Income^†
Company	Rs. 1 crore or less	Above Rs. 1 crore but up to Rs. 10 crore	Above Rs. 10 crore
Domestic Company opting for section 115BA	Nil	7%	12%
Domestic Company opting for section 115BAA	10%	10%	10%
Domestic Company opting for section 115BAB	10%	10%	10%

Further, the amount of income tax and the surcharge shall be increased by health and education cess calculated at the rate of 4% of such income tax and surcharge.

Time limit to opt for the scheme

For Section 115BA – The eligible domestic company has to exercise the option on or before the due date for furnishing the first of the returns of income, which the company is required to furnish under the Act.

For Section 115BAA – The eligible domestic company has to exercise the option on or before the due date for furnishing the returns of income, which the company is required to furnish under the Act.

For Section 115BAB – The eligible domestic company has to exercise the option on or before the due date for furnishing the first of the returns of income, which the company is required to furnish under the Act.

Form to be filed to opt for the scheme

For Section 115BA – This option should be exercised by electronically furnishing Form No. 10-IB.

For Section 115BAA – This option should be exercised by electronically furnishing Form No. 10-IC.

For Section 115BAB – This option should be exercised by electronically furnishing Form No. 10-ID.

Withdrawal from the scheme

For Section 115BA – Once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year. However, the domestic company can switch from this regime to the special tax regime of Section 115BAA.

For Section 115BAA – Once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.

For Section 115BAB – Once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.

Consequences of not computing total income as per the regime

For Section 115BAA – Where a domestic company after opting for this regime does not compute its total income in accordance with the provisions thereof in any previous year, the option for this regime shall become invalid for that previous year as well as subsequent years.

Thus, once a domestic company fails to compute its total income in accordance with the provisions of this regime, it shall never be able to opt for this regime again. In such cases, the company’s total income shall be computed as if the option had not been exercised for the relevant previous year and subsequent years.

For Section 115BAB – Where a domestic company after opting for this regime does not comply with conditions of this regime in any previous year, the option for this regime shall become invalid for that previous year as well as subsequent years. In such cases, the company’s total income shall be computed as if the option had not been exercised for the relevant previous year and subsequent years.

Thus, once a domestic company fails to comply with the conditions of this regime, it shall never be able to opt for this regime again. However, in such a situation, the domestic company can switch to Section 115BAA.

Applicability of MAT

For Section 115BA – If a domestic company has exercised the option of Section 115BA, the provisions of Minimum Alternate Tax (MAT) shall be applicable.

For Section 115BAA – If a domestic company has exercised the option of Section 115BAA, the provisions of MAT shall not be applicable.

For Section 115BAB – If a domestic company has exercised the option of Section 115BAB, the provisions of MAT shall not be applicable.

Specified exemptions and deductions

The option to pay tax at lower rates shall be available only if the total income of a domestic company is computed without claiming the following exemptions or deductions:

Exemptions/Deductions

Deduction for units established in Special Economic Zones (SEZ) [Section 10AA]

Additional depreciation in respect of new plant and machinery [Section 32(1)(iia)]

Deduction for investment in new plant and machinery in notified backward areas [Section 32AD]

Deduction in respect of tea, coffee, or rubber business [Section 33AB]

Deduction in respect of business consisting of prospecting or extraction or production of petroleum or natural gas in India [Section 33ABA]

Deduction for donation made to approved scientific research association, university college, or other institutes for doing scientific research which may or may not be related to business [Section 35(1)(ii)]

Deduction for payment made to an Indian company for doing scientific research which may or may not be related to business [Section 35(1)(iia)]

Deduction for donation made to university, college, or other institution for doing research in social science or statistical research [Section 35(1)(iii)]

Deduction for donation made to National Laboratory or IITs, etc. for doing scientific research which may or may not be related to business [Section 35(2AA)]

Deduction for capital expenditure (excluding the cost of land and building) on the scientific research relating to the business of bio-technology or manufacturing any article or thing [Section 35(2AB)]

Deduction in respect of capital expenditure incurred in respect of certain specified businesses, i.e., cold chain facility, warehousing facility, etc. [Section 35AD]

Deduction for expenditure on agriculture extension project [Section 35CCC]

Deduction for expenditure on skill development project [Section 35CCD]

Deduction in respect of certain incomes other than specified under Section 80JJAA or Section 80LA(1A)* or Section 80M** [Chapter VI-A]

* An eligible assessee being a Unit of an IFSC can claim a deduction under section 80LA(1A).

** Domestic company opting for Section 115BAA or Section 115BAB can claim a deduction under Section 80M.

Special Tax Regimes for Individual, HUF, AOP, BOI or AJP

Section 115BAC allows an individual, HUF, AOP (other than a co-operative society), BOI, or AJP to pay income tax at lower tax rates (plus surcharge and cess) provided the total income is computed without claiming specified exemptions or deductions. The special income shall be taxable at the special rates specified in respective provisions of the Act.

The Finance Act, 2023 makes it a default tax regime. If an assessee does not want to pay tax according to the new tax regime, he will have to explicitly opt out of it and choose to be taxed under the old tax regime in a prescribed manner.

Special Tax Regimes Individuals, HUF, AOP, BOI, AJP, Companies & Co-operatives

Conditions to be satisfied

The following conditions should be satisfied in order to avail the benefit of a lower tax rate under this provision:

Total income of the assessee has been computed without claiming specified exemptions and deductions;
Total income of the assessee has been computed without set-off of losses or depreciation carried forward from earlier years if such loss or depreciation is attributable to any of the specified exemptions and deductions;
Total income of the assessee has to be computed without set-off of any loss under the head ‘Income from house property’ with any other head of income;
Total income of the assessee is calculated after claiming depreciation in the prescribed manner; and
Total income of the assessee has to be computed without claiming any exemptions or deductions for allowances or perquisites provided under any other law for the time being in force.

Tax Rates

For the assessment year 2025-26, the income shall be taxable at the following rate:

*Total Income (Rs)*	*Rate*
Upto 3,00,000 From 3,00,001 to 7,00,000	Nil 5%
From 7,00,001 to 10,00,000	10%
From 10,00,001 to 12,00,000	15%
From 12,00,001 to 15,00,000	20%
Above 15,00,000	30%
A maximum rebate of Rs. 25,000 is allowed under section 87A from the amount of income tax on total income, which is chargeable to tax under section 115BAC(1A). However, this rebate is allowed if the total income of assessee chargeable to tax under section 115BAC(1A) is up to Rs. 7,00,000.
Further, if the total income chargeable to tax under section 115BAC(1A) exceeds Rs. 7,00,000 and the tax payable on such income exceeds the difference between the total income and Rs. 7,00,000, he can claim a rebate with marginal relief to the extent of the difference between the tax payable on such total income and the amount by which it exceeds Rs. 7,00,000

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Further, under the new tax regime, the Surcharge and Health & Education Cess rates will be the same as those applicable under the normal tax regime, with one exception. If the total income of an assessee exceeds Rs. 5 crores, the surcharge rate will be 25% instead of 37%.

For the assessment year 2026-27, the income shall be taxable at the following rate:

Total Income (Rs)	Rate
Upto 4,00,000	Nil
From 4,00,001 to 8,00,000 From 8,00,001 to 12,00,000	5% 10%
From 12,00,001 to 16,00,000	15%
From 16,00,001 to 20,00,000	20%
From 20,00,001 to 24,00,000	25%
Above 24,00,000	30%
A maximum rebate of Rs. 60,000 is allowed under section 87A from the amount of income tax on total income, which is chargeable to tax under section 115BAC(1A). However, this rebate is allowed if the total income of assessee chargeable to tax under section 115BAC(1A) is up to Rs. 12,00,000. Note: The total rebate under section 87A shall not exceed the amount of income tax payable as per the rates provided in section 115BAC(1A) [effective from AY 2026-27] Further, if the total income chargeable to tax under section 115BAC(1A) exceeds Rs. 12,00,000 and the tax payable on such income exceeds the difference between the total income and Rs. 12,00,000, he can claim a rebate with marginal relief to the extent of the difference between the tax payable on such total income and the amount by which it exceeds Rs. 12,00,000
Further, under the new tax regime, the Surcharge and Health & Education Cess rates will be the same as those applicable under the normal tax regime, with one exception. If the total income of an assessee exceeds Rs. 5 crores, the surcharge rate will be 25% instead of 37%.

Rate of surcharge

The rate of surcharge for the Assessment Year 2025-26 and 2026-27 shall be as under:

Nature of Income	Range of Total Income
Nature of Income	Up to Rs. 50 lakhs	More than Rs. 50 lakhs but up to Rs. 1 crore	More than Rs. 1 crore but up to Rs. 2 crores	More than Rs. 2 crores
Short-term capital gain covered under Section 111A or Section 115AD	Nil	10%	15%	15%
Long-term capital gain covered under Section 112A or Section 115AD or Section 112	Nil	10%	15%	15%
Dividend income (not being dividend income chargeable to tax at a special rate under sections 115A, 115AB, 115AC, 115ACA)	Nil	10%	15%	15%
Unexplained income chargeable to tax under Section 115BBE	25%	25%	25%	25%
Any other income**	Nil	10%	15%	25%

* The Finance Act, 2022 has put a cap on the rate of surcharge to 15% in case of an AOP consisting of only companies as its members. The rate of surcharge in case of such AOP shall be as follows:

– 10% where total income exceeds Rs. 50 lakh but does not exceed Rs. 1 crore;

– 15% where total income exceeds Rs. 1 crore.

Further, the amount of income tax and the surcharge shall be increased by health and education cess calculated at the rate of 4% of such income tax and surcharge.

Time limit to opt for the scheme

If an assessee having income (other than income from a business or profession) wants to opt for the old tax regime for a relevant year, he can do so while filing his return of income for the relevant assessment year under Section 139(1).

However, an assessee having income from a business or profession can also opt out of the new tax regime and switch to the old tax regime for a relevant year. However, he has to exercise this option in a prescribed manner on or before the due date for filing the return of income under Section 139(1) for such year. Further, once the option of the old tax regime is exercised by him, it shall apply for the year in which the option is exercised and for the subsequent assessment year.

Applicability of AMT

If an eligible assessee has exercised the option of Section 115BAC, the provisions of AMT under Section 115JC shall not be applicable.

Specified exemptions and deductions

The option to pay tax at lower rates shall be available only if the total income of an eligible assessee is computed without claiming the following exemptions or deductions:

Exemptions/Deductions

Leave Travel concession [Section 10(5)]

Official and personal allowances (other than those as may be prescribed) [Section 10(14)]

Allowances to MPs/MLAs [Section 10(17)]

Exemption for income of minor [Section 10(32)]

Deduction for units established in Special Economic Zones (SEZ) [Section 10AA]

Entertainment Allowance [Section 16(ii)]

Professional Tax [Section 16(iii)]

Interest on housing loan (In case of self-occupied house property) [Section 24(b)]