Section 205 - Conditions for tax on income of certain companies and co-operative societies
Section 205 is the operational control centre for the optional regimes. A rate election cannot be reviewed without mapping every section 205 condition and related-party pricing risk.
Reviewed by CA Nikhil Gupta · Updated 9 October 2026
Current law and effective date
Section 205 is controlled against the consolidated Income-tax Act, 2025 as amended by the Finance Act, 2026. The Act and Income-tax Rules, 2026 operate from 1 April 2026; earlier tax years and saved proceedings require the repeal-and-savings framework rather than automatic migration.
Primary statute: Income Tax Department consolidated Act | Rules: Notified Income-tax Rules, 2026
2-minute decode
Section 205 is the operational control centre for the optional regimes. A rate election cannot be reviewed without mapping every section 205 condition and related-party pricing risk.
Who should use this section
Finance and tax teams evaluating conditions for tax on income of certain companies and co-operative societies, especially where an option, special rate, denied deduction, loss pool, book-profit adjustment or transition credit can change the effective tax burden under section 205.
How section 205 works in practice
Section 205 sits in Chapter 13 (Determination of Tax in Special Cases) and should be read as a connected rule rather than an isolated label. The practical question is whether the facts actually satisfy the trigger for “Conditions for tax on income of certain companies and co-operative societies”. A section 205 review should start with the taxpayer classification and the election/default rule, then rebuild taxable income before applying the headline rate. For section 205, separate ordinary income from special-rate income, identify deductions or losses that the regime blocks, and quantify transition balances before comparing alternatives. For conditions for tax on income of certain companies and co-operative societies, the rate is the last step rather than the first. The operating controls are: Maintain a section-by-section barred-deduction register; Review related-party profit allocation and specified domestic transactions; Test excluded manufacturing activities and used-asset thresholds. A reviewer should record why maintain a section-by-section barred-deduction register., because that conclusion drives the downstream computation, reporting or procedural consequence.
Old-law bridge
Conditions formerly embedded in sections 115BA/BAA/BAB/BAD/BAE
The old-law bridge is a research aid, not an automatic precedent transfer. Match the old provision, the current section, saved proceedings and effective dates before importing an older interpretation.
Current-law control
No separate Finance Act 2026 delta is recorded for section 205 in the current-law register. The page therefore follows the consolidated Act wording and the current Rules mapping, with the official consolidated statute controlling if a later notification or amendment affects the provision.
Professional alert
Maintain a section-by-section barred-deduction register. Review related-party profit allocation and specified domestic transactions. Test excluded manufacturing activities and used-asset thresholds.
Connected Income-tax Rules, 2026 and Forms
| Rule | Current control | Form |
|---|---|---|
| No provision-specific Rule/Form is directly mapped in this tranche. Apply the section itself and test any separate Rule only where another provision expressly cross-refers to it. | ||
Worked application
A manufacturer routes high-margin sales to a connected entity under non-arm's-length terms. The Assessing Officer may determine ordinary profit and tax the excess at the special 30% rate.
Evidence / compliance checklist
- Maintain a section-by-section barred-deduction register.
- Review related-party profit allocation and specified domestic transactions.
- Test excluded manufacturing activities and used-asset thresholds.
- Maintain the section 205 option/default evidence and due-date proof.
- Archive the computation bridge from ordinary provisions to section 205 tax.
- Tie every denied deduction, loss or credit to the relevant current-law clause.
Common mistake
Treating section 205 as a headline-rate shortcut. Conditions for tax on income of certain companies and co-operative societies must be applied only after testing eligibility, the option mechanics, blocked deductions/losses, special-rate income and any Finance Act 2026 transition rule.
Recommended approach
For section 205, create a one-page legal-to-evidence matrix. For section 205, put the current statutory condition in the first column, the transaction or procedural fact in the second, the supporting document in the third, and the tax/procedural consequence in the fourth. The first checkpoint should be: Maintain a section-by-section barred-deduction register. This section 205 matrix makes reviewable differences visible before a return, opinion, notice response or litigation position is finalised.
Thresholds, rates, periods and timing checkpoints
- 30%
Related provisions and interaction map
Section 205 should be cross-checked with surcharge, cess, rebate, special-rate income, loss carry-forward, return-option and transition provisions. Optional regimes also require a permanent record of deductions, depreciation and credit balances surrendered or preserved on entry.
Direct navigation / cross-checks: section 204, section 199, section 201, section 206
Validated statutory core - official current source controlled
Text-status note: This page presents a validated operative statutory core rather than pretending a summary is verbatim law. Use the linked official consolidated Act before quoting sub-section language in a filing, opinion or litigation document.
Primary-source trail
Statute: Income-tax Act, 2025 as amended by Finance Act, 2026
Rules: Income-tax Rules, 2026
Law navigation: Income Tax Department 2025 Act / Rules hub
Quoting note: The official consolidated Act controls verbatim legislative language.
FAQs
Does an old Income-tax Act, 1961 decision automatically decide section 205?
No. The old-law bridge helps research, but transferability depends on materially matching language, transition rules and any Finance Act 2026 change.
Which source should be quoted in advice or litigation?
Quote the official consolidated statute for the relevant tax year. Where this page presents a validated statutory core rather than complete verbatim text, use the official Act for sub-section wording.
What should be checked immediately before acting?
Re-check the current statutory text, the section-specific Rule/Form mapping and any notification or court order relevant to the exact facts. Section 205 should not be applied from a historic section number or a generic tax summary alone.