Corporate Tax Rate Options Under Income‑tax Act 2025: Notice Triggers, Response Strategy and Penalties
Indian domestic companies have several income tax rate options: the normal-rate track (25% for turnover-eligible companies, 30% otherwise), the 22% concessional rate under Section 200 (no deductions, no MAT), and the 15% rate for new manufacturing companies under Section 201. Each comes with trade-offs. Choosing the wrong rate — or missing the irrevocability of the 22% election — can cost crores. This guide maps the old sections to new sections, explains what triggers scrutiny notices, and gives a decision framework for CFOs and company secretaries.
1. The Corporate Tax Rate Options at a Glance
| Rate Option | Old Section (1961 Act) | New Section (2025 Act) | Base Rate | Effective Rate (income > ₹10Cr) |
|---|---|---|---|---|
| Normal rate — turnover ≤ ₹400 Cr (in the relevant base year per the current rules), with all deductions | Section 115BA | Section 199 | 25% | ~29.12% |
| Normal rate — turnover above ₹400 Cr threshold, or not otherwise eligible for the 25% rate | Default provisions | Default provisions | 30% | ~34.9% |
| Concessional rate — no specified deductions, available to any domestic company | Section 115BAA | Section 200 | 22% | ~25.17% (flat 10% surcharge regardless of income level) |
| New manufacturing company rate | Section 115BAB | Section 201 | 15% | ~17.16% (flat 10% surcharge) |
2. The 25%/30% "Normal" Rate — When It Makes Sense
Domestic companies that don't elect into the 22% or 15% concessional regimes are taxed at 25% (if turnover/gross receipts fall within the prescribed limit, currently ₹400 crore against the relevant base year) or 30% (for larger companies or those not meeting the Section 199 conditions). It makes sense to stay on this normal-rate track when:
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- The company has large unutilised MAT credit that it wants to set off
- The company is eligible for significant deductions (Chapter VI-A exemptions, special economic zone deductions, R&D deductions) that reduce taxable income meaningfully below what the 22% concessional computation would yield
- The company has substantial brought-forward losses that will reduce income to near zero
At the normal rate: MAT at 15% of book profit applies if the normal tax is lower than MAT. MAT credit can be carried forward for 15 years.
For the connected rule or filing step, see Income Tax e-Proceedings Notice: Document Pack and Response Workflow.
3. 22% Concessional Rate (Section 200) — The Most Widely Used Option
This rate originated as Section 115BAA under the 1961 Act (introduced by the Taxation Laws (Amendment) Ordinance 2019), and carries forward as Section 200 of the Income-tax Act 2025. Key features:
- Base rate: 22%; effective rate ~25.17% (with 10% surcharge and 4% cess)
- Irrevocable once opted — cannot switch back to the normal (25%/30%) rate track
- Surcharge on tax is a flat 10% regardless of income level — this is correct and one of the genuine advantages of the regime, since it avoids the normal-rate surcharge structure stepping up at higher income levels
- MAT does not apply; accumulated MAT credit is forfeited
- The company must forgo certain deductions: additional depreciation, Chapter VI-A deductions (other than the employer's contribution to a recognised provident/superannuation fund), SEZ deductions, investment-linked deductions
- Normal depreciation under the new Act's depreciation provision is allowed
Case Study: Prism Software Ltd — To Opt or Not to Opt
Prism Software Ltd has: Book profit (P&L) = ₹15 crore. MAT credit carried forward = ₹1.8 crore. Additional depreciation eligible = ₹2 crore. SEZ deduction = ₹1.5 crore. Normal-rate-track income = ₹15 crore − ₹3.5 crore (deductions) = ₹11.5 crore.
- Option A — Normal rate (25%, since turnover qualifies): Tax on ₹11.5 crore = ₹2.875 crore. MAT check: 15% × ₹15 crore book profit = ₹2.25 crore. Normal tax is higher, so normal tax governs. After MAT credit set-off (₹1.8 crore), net base tax before surcharge/cess = ₹1.075 crore; + 12% surcharge (income above ₹10 crore) + 4% cess ≈ ₹1.25 crore effective.
- Option B — 22% rate (Section 200): No deductions, income = ₹15 crore. Tax = 22% × ₹15 crore = ₹3.3 crore. + flat 10% surcharge + 4% cess ≈ ₹3.77 crore. MAT credit forfeited (₹1.8 crore).
- Option A saves roughly ₹2.5 crore in Tax Year 2026-27 — the gap is larger than it first appears once MAT credit set-off is correctly applied. Option B still offers simplicity and removes annual deduction-tracking overhead, but the financial case for staying on the normal rate is stronger than a same-base-rate comparison would suggest, precisely because Prism qualifies for 25% rather than 30%.
Decision: Prism should stay on the normal rate until MAT credit is exhausted and deductions have fewer years remaining. Then re-evaluate switching to 22% for long-term simplicity — but the comparison must always start from the correct base rate (25% if turnover qualifies, not an assumed 30%), since that materially changes the numbers.
4. 15% Rate for New Manufacturing Companies
Available to domestic companies that were incorporated on or after 1 October 2019 and commence manufacturing before 31 March 2024 (the deadline has passed for new entrants). Key conditions:
- Company must not have been formed by reconstruction/re-establishment of an existing business
- Must not use plant or machinery previously used for any purpose in India
- Must not use a building previously used as a hotel or convention centre
- The company must not be engaged in any other business other than manufacturing/production
The effective rate at 15% + 10% surcharge + 4% cess = approximately 17.01%. No MAT applies.
5. Notice Triggers — What the Department Looks For
Companies opting for concessional rates attract specific scrutiny:
- Election form not filed on time: The election for the 22% rate (historically Form 10-IC) must be made before the ITR due date. The Income-tax Rules 2026 renumbered several forms; confirm the current form number and filing mechanism via the official forms navigator before relying on the old form number, since using an outdated form reference is itself a compliance risk. Missing the filing deadline is a common error and the benefit may be denied.
- Deductions claimed that are barred: If a company at 22% or 15% claims additional depreciation or a barred Chapter VI-A deduction, expect a notice
- MAT computation filed despite a MAT-exempt election: the MAT schedule should not be filled for companies on the 22% or 15% regimes; if it is, it signals confusion and may trigger scrutiny
- Book profit manipulation: Under the normal rate with MAT, companies that show low book profits (aggressive provisioning) are flagged
- 15% rate without proof of manufacturing commencement: CBDT requires the manufacturing-company election form (historically Form 10-ID, not to be confused with Form 10-IB, which was the election form for the 25% Section 115BA/Section 199 rate) and supporting manufacturing-commencement evidence
6. Rate Comparison Summary
| Parameter | Normal Rate (25% if turnover-eligible, else 30%) | 22% Concessional (Section 200) | 15% New Mfg. (Section 201) |
|---|---|---|---|
| Effective rate (>₹10Cr income) | ~29.12% (25% base) or ~34.94% (30% base) | ~25.17% | ~17.16% |
| MAT applicable? | Yes (15% of book profit) | No | No |
| MAT credit utilisation? | Yes | Forfeited on opt-in | Forfeited on opt-in |
| Additional depreciation? | Yes | No | No |
| Chapter VI-A deductions? | Yes | No (other than employer's PF/superannuation contribution) | No |
| Irrevocable? | N/A (default track, though the 25% sub-option under Section 199 itself involves an election) | Yes | Yes |
| Surcharge structure | 7%/12% stepped by income level | Flat 10% regardless of income | Flat 10% regardless of income |
| Election form (verify current number under Income-tax Rules 2026 before filing) | Historically Form 10-IB for the 25% manufacturing-turnover rate (Section 115BA/199) | Historically Form 10-IC | Historically Form 10-ID |
Decision Checklist for CFOs
- First confirm which "normal rate" actually applies — 25% if turnover/gross receipts are within the prescribed limit against the relevant base year, 30% otherwise. Don't default to assuming 30%.
- Quantify accumulated MAT credit — forfeiture on opting for 22% is often the biggest hidden cost
- Model next 5 years of deductions (additional depreciation, Chapter VI-A) before opting for 22%
- File the correct election form on time (before the ITR due date) — verify the current form number under the Income-tax Rules 2026 rather than relying on the old 1961-Act form numbers, since these have been renumbered
- At 22% or 15% rate, do not claim any barred deductions — return to the normal-rate track is impossible
- New manufacturing companies: verify the manufacturing-rate election form is filed (the manufacturing-company form under Section 201/old 115BAB is distinct from the turnover-based 25% rate's election form under Section 199/old 115BA) and that manufacturing commencement evidence is documented
- For Tax Year 2026-27, advance tax should be computed at the elected rate — wrong rate in advance tax leads to interest under the applicable advance-tax shortfall provisions
Frequently Asked Questions
No. The 22% concessional rate election under Section 200 is irrevocable. Once a domestic company opts for this rate (after filing the applicable election form), it cannot revert to the normal-rate track — whether that would have been the 25% turnover-based rate or the 30% rate — in any subsequent Tax Year.
No. Companies opting for the 22% concessional rate are exempt from MAT. Accumulated MAT credit from prior years is forfeited on opt-in and cannot be set off against future tax liability.
The surcharge under the 22% concessional regime (Section 200) is a flat 10%, regardless of income level — this is a key feature of the regime, distinct from the stepped 7%/12% surcharge that applies under the normal rate. So the effective rate is 22% base rate + 10% surcharge on tax + 4% cess on (tax + surcharge) ≈ 25.17%, consistently across income levels, not just above ₹10 crore.
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- Income Tax
- Official starting point
- www.incometaxindia.gov.in