A founder files ITR-6 for AY 2026-27, sees the headline "22% corporate tax instead of 30%", and tells the CA to tick the Section 115BAA box. Three months later the same company wants to claim additional depreciation on a new plant and set off ₹40 lakh of accumulated MAT credit — and discovers both are gone, permanently. The election under Section 115BAA is irreversible. Once exercised, a domestic company cannot go back to the normal regime in any subsequent assessment year.

The 22% number is real. So is everything you surrender to get it. This piece sets out exactly what the section says, what you give up, and how to run the arithmetic before Form 10-IC is filed.

What the law actually requires

Section 115BAA of the Income-tax Act, 1961 was inserted by the Taxation Laws (Amendment) Act, 2019 with effect from AY 2020-21. It allows a domestic company to pay income tax at 22% on its total income, subject to conditions.

The effective rate is not 22%. Section 115BAA carries a surcharge of 10% regardless of income level, plus health and education cess at 4%. The arithmetic: 22% × 1.10 × 1.04 = 25.168%. That is the number to compare against alternatives — not 22%.

Conditions in sub-section (2). The company's total income must be computed without claiming:

Deduction under Section 10AA (SEZ units)
Additional depreciation under Section 32(1)(iia) — the 20% (or 35%) first-year allowance on new plant and machinery
Deduction under Section 32AD, 33AB, 33ABA (investment allowance, tea/coffee/rubber development, site restoration)
Deductions under Sections 35(1)(ii), (iia), (iii) and 35(2AA), 35(2AB) — weighted scientific research deductions
Deduction under Section 35AD (specified business capital expenditure)
Deduction under Section 35CCC / 35CCD (agricultural extension, skill development)
Any deduction under Chapter VI-A Part C — Sections 80-IA, 80-IAB, 80-IB, 80-IC, 80-IE, 80JJA and similar profit-linked deductions. Section 80JJAA (additional employee cost) and Section 80M (inter-corporate dividends) are the two express exceptions and remain available.
Set-off of any brought-forward loss or unabsorbed depreciation attributable to the above deductions. Sub-section (3) makes this explicit and states such loss is deemed to have been already given full effect — it cannot be carried forward further.

Form 10-IC. Under Rule 21AE of the Income-tax Rules, 1962, the option is exercised by filing Form 10-IC electronically on or before the due date for furnishing the return under Section 139(1). It must be verified by digital signature or EVC. Once exercised for a previous year, sub-section (5) states the option "cannot be subsequently withdrawn for the same or any other previous year."

MAT is switched off. Section 115JB(5A) provides that MAT does not apply to a company that has exercised the 115BAA option. That sounds like a benefit. It is — going forward. But Section 115JAA(8) denies MAT credit to a 115BAA company. Any accumulated MAT credit from earlier years is extinguished, not refunded, not carried forward.

Compare the alternatives. Section 115BAB offers 15% (effective 17.16%) but only to a new manufacturing company incorporated on or after 1 October 2019 that commenced manufacture by the statutory cut-off, and it comes with much tighter conditions including the Section 115BAB(6) transfer-pricing-style adjustment on related-party transactions. Under the normal regime the rate is 25% where turnover in the relevant prescribed previous year did not exceed ₹400 crore (effective ~26% to 29.12% depending on surcharge slab), otherwise 30%, plus MAT at 15% of book profit under Section 115JB.

Practical implications

The MAT credit write-off is the most common expensive mistake. A company that spent three years in MAT because of accelerated depreciation may be carrying ₹30–80 lakh of credit under Section 115JAA, usable for up to 15 assessment years. Switch to 115BAA and that asset disappears from the balance sheet in one entry. Auditors will require it to be written off; the P&L takes the hit. If your MAT credit divided by expected annual profit exceeds roughly two years of the rate saving, staying out of 115BAA is arithmetically better until the credit is consumed.

Manufacturing companies lose the most. Additional depreciation at 20% on new plant and machinery is a real cash-timing benefit. A company installing ₹5 crore of new machinery forfeits a ₹1 crore first-year deduction — worth about ₹29 lakh of tax at the normal 29.12% effective rate. That single forfeiture can exceed the annual saving from the lower rate for a company with modest profit.

Section 80-IA / 80-IB claimants lose the deduction entirely. Infrastructure, power, and certain industrial-undertaking companies operating inside a tax-holiday window should not touch 115BAA until the holiday expires. A company two years into a ten-year 80-IA holiday that elects 115BAA has voluntarily converted an effective 0% rate into 25.168%.

Late Form 10-IC. Filing the return under Section 139(1) but omitting Form 10-IC has been a recurring cause of dispute. The CBDT issued condonation circulars for early years (notably Circular 19/2023 for AY 2021-22), but a company cannot rely on future condonation. The safe practice is to file Form 10-IC before the ITR-6, and retain the acknowledgement number — the ITR-6 asks for it.

Penalties for getting the return wrong. Under-reporting of income attracts 50% of the tax on under-reported income under Section 270A(7); misreporting attracts 200% under Section 270A(9). A wrongly claimed 80-IA deduction alongside a 115BAA election is not a clerical error — it is a claim the statute expressly forbids, and the Assessing Officer is entitled to treat it as misreporting.

MCA21 v3 angle. The MCA21 v3 system reconciles the profit and turnover figures in AOC-4 and AOC-4 XBRL against the financial statements filed. A company that writes off a material MAT credit and does not explain it in the notes to accounts creates an unexplained swing in deferred tax that shows up as an inconsistency during scrutiny. Where 115BAA is elected, the deferred tax asset and liability must be remeasured at 25.168% in the year of election under Ind AS 12 / AS 22 — and the remeasurement disclosed. Doing this quietly is what invites questions.

Step-by-step: what to do

Pull your MAT credit balance from the last filed ITR-6 (Schedule MATC) and confirm it against the balance sheet. This is the single largest hidden cost of switching.
List every deduction the company currently claims across Sections 10AA, 32(1)(iia), 35, 35AD, 80-IA to 80-IE. Quantify each one in rupees for the next three years, not just the current year.
Compute tax under both regimes for three forward years. Normal regime: 25% or 30% base plus surcharge plus 4% cess, less deductions, floor-tested against MAT at 15% of book profit. New regime: 25.168% flat on income computed without those deductions.
Add the MAT credit write-off to the 115BAA column as a one-time cost in year one.
Check whether Section 115BAB applies instead. If the company was incorporated on or after 1 October 2019 and is genuinely in manufacturing or production, 17.16% may beat 25.168% comfortably — but confirm the commencement-of-manufacture condition is satisfied.
Decide, then file Form 10-IC electronically under Rule 21AE, before the Section 139(1) due date, signed with a valid Class 3 DSC. Save the acknowledgement.
File ITR-6 quoting the Form 10-IC acknowledgement number in the relevant field. Do not leave it blank.
Pass the deferred tax remeasurement entry at 25.168% and disclose it in the notes under AS 22 or Ind AS 12, with a note explaining the 115BAA election and the MAT credit derecognition.
Update the advance tax working for the remainder of the year. The rate change alters instalment amounts under Section 211, and shortfall attracts interest under Sections 234B and 234C regardless of which regime you chose.

FAQ

Can I switch back to the old regime later?
No. Section 115BAA(5) makes the option irreversible for the same and every subsequent previous year. The only narrow exception is where a company that had opted for Section 115BAB fails a 115BAB condition — it may then move to 115BAA.

Do I have to file Form 10-IC every year?
No. It is filed once, for the first previous year in which the option is exercised. For later years you tick the option in ITR-6 and quote the original acknowledgement number.

Is Section 80JJAA still available under 115BAA?
Yes. Section 80JJAA (30% of additional employee cost for three assessment years) and Section 80M (deduction for dividends received from another domestic company) are the express carve-outs and continue to apply. For a services company hiring aggressively, 80JJAA plus 25.168% is often the best combination available.

What happens to my carried-forward business loss?
Ordinary business loss under Section 72 that is not attributable to the disallowed deductions can still be set off. Loss and unabsorbed depreciation attributable to Sections 10AA, 32(1)(iia), 35AD, 80-IA and the rest cannot — Section 115BAA(3) deems them already fully allowed and they lapse.

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