Income Tax Act 1961 Section 115BA

Income Tax Act Section 115BA offers domestic companies an option to pay tax at a concessional rate of 22% plus applicable surcharge and cess. This section is designed to simplify tax compliance and encourage companies to declare profits transparently.

Understanding Section 115BA is essential for companies, tax professionals, and businesses to make informed decisions about tax planning and compliance under the new tax regime.

Income Tax Act Section 115BA – Exact Provision

This section allows domestic companies to opt for a lower tax rate of 22%, provided they forego certain exemptions and incentives. It simplifies tax calculation but restricts the use of specified deductions and incentives.

• Applicable only to domestic companies.

• Tax rate fixed at 22% plus surcharge and cess.

• Option to forego specified exemptions and incentives.

• Option exercised at the time of filing return.

• Once opted, the company cannot revert to old tax regime for that year.

Explanation of Income Tax Act Section 115BA

This section states that domestic companies can choose to pay tax at 22% instead of the normal rates, subject to conditions.

• Applies to domestic companies only.

• Option available for each assessment year.

• Company must forego certain deductions and incentives under the Act.

• Tax rate excludes surcharge and health and education cess.

• Option exercised by declaring in the income tax return.

Purpose and Rationale of Income Tax Act Section 115BA

The section aims to simplify corporate taxation and boost compliance by offering a lower tax rate with fewer exemptions.

• Encourages companies to declare true profits.

• Reduces litigation by limiting exemptions.

• Supports ease of doing business.

• Enhances revenue predictability for the government.

When Income Tax Act Section 115BA Applies

This section applies when a domestic company opts for the concessional tax rate for a particular assessment year.

• Relevant for financial years starting on or after 1 April 2017.

• Applies only to domestic companies, not foreign companies.

• Option exercised in the income tax return for the assessment year.

• Not applicable if the company claims specified exemptions or incentives.

Tax Treatment and Legal Effect under Income Tax Act Section 115BA

Under this section, the company pays tax at 22% on total income, but must relinquish specified deductions and incentives. This affects the computation of total income and tax liability.

The concessional rate excludes surcharge and cess, which are added separately. The section interacts with other provisions by restricting claims under certain sections like 10AA, 32(1)(iia), and others.

• Tax computed at 22% plus surcharge and cess.

• Specified exemptions and deductions disallowed.

• Once opted, the company must comply for that year.

Nature of Obligation or Benefit under Income Tax Act Section 115BA

This section creates a conditional tax benefit by offering a lower tax rate if the company waives certain exemptions and incentives.

The obligation is on domestic companies to decide annually whether to opt for this regime. The benefit is mandatory once chosen for the year.

• Creates a tax liability at a concessional rate.

• Compliance duty to forgo specified deductions.

• Option exercised voluntarily by the company.

• Benefit conditional on not claiming certain exemptions.

Stage of Tax Process Where Section Applies

Section 115BA applies primarily at the stage of income computation and return filing.

• Income accrual and computation stage.

• Option declared during return filing.

• Assessment based on chosen tax regime.

• Reassessment or appeal follows chosen option.

Penalties, Interest, or Consequences under Income Tax Act Section 115BA

Non-compliance with conditions under Section 115BA can lead to disallowance of the concessional rate and application of normal tax rates. Interest and penalties may apply for defaults in filing or payment.

• Loss of concessional tax benefit if conditions not met.

• Interest on delayed tax payments.

• Penalties for incorrect declaration or non-compliance.

• No specific prosecution under this section.

Example of Income Tax Act Section 115BA in Practical Use

Assessee Company X, a domestic company, earned a total income of ₹10 crore in FY 2025-26. It opts for Section 115BA to pay tax at 22%. Company X foregoes specified exemptions and files its return accordingly. The tax payable is computed at 22% plus surcharge and cess, simplifying compliance and reducing tax liability compared to the old regime.

• Option simplifies tax calculation.

• Company benefits from lower tax rate.

Historical Background of Income Tax Act Section 115BA

Introduced by the Finance Act 2017, Section 115BA was part of tax reforms to reduce corporate tax rates and encourage transparency. It has undergone amendments to clarify conditions and expand applicability.

• Introduced in 2017 to lower corporate tax rates.

• Amended to include conditions on exemptions.

• Judicial interpretations clarified scope and applicability.

Modern Relevance of Income Tax Act Section 115BA

In 2026, Section 115BA remains relevant as companies seek simplified tax regimes amid digital compliance requirements. It aligns with faceless assessments and TDS return filings, supporting efficient tax administration.

• Supports digital filing and compliance.

• Encourages transparent profit declaration.

• Reduces litigation and disputes.

Related Sections

• Income Tax Act Section 4 – Charging section.

• Income Tax Act Section 5 – Scope of total income.

• Income Tax Act Section 10AA – Exemption for SEZ units.

• Income Tax Act Section 32(1)(iia) – Additional depreciation.

• Income Tax Act Section 139 – Filing of returns.

• Income Tax Act Section 143 – Assessment.

Case References under Income Tax Act Section 115BA

No landmark case directly interprets this section as of 2026.

Key Facts Summary for Income Tax Act Section 115BA

• Section: 115BA

• Title: Concessional Tax for Domestic Companies

• Category: Income, Tax Rate, Corporate Tax

• Applies To: Domestic Companies

• Tax Impact: Tax at 22% plus surcharge and cess

• Compliance Requirement: Option exercised in return, forego specified exemptions

• Related Forms/Returns: Income Tax Return (ITR-6)

Conclusion on Income Tax Act Section 115BA

Section 115BA offers domestic companies a simplified and reduced tax rate option, encouraging transparency and ease of compliance. By opting for this section, companies accept certain restrictions but benefit from predictable tax liabilities.

Understanding this section helps companies make strategic tax decisions aligned with their financial goals. It also supports the government's objective of broadening the tax base and reducing litigation.

FAQs on Income Tax Act Section 115BA

Who can opt for tax under Section 115BA?

Only domestic companies can opt for the concessional tax rate of 22% under Section 115BA by fulfilling specified conditions.

Can a company revert to the old tax regime after opting for Section 115BA?

No, once a company opts for Section 115BA for an assessment year, it cannot revert to the old tax regime for that year.

Are foreign companies eligible for Section 115BA benefits?

No, Section 115BA applies exclusively to domestic companies and does not extend to foreign companies.

What exemptions must be foregone to opt for Section 115BA?

Companies must forego certain exemptions and incentives like those under Sections 10AA and additional depreciation under Section 32(1)(iia).

How is the tax rate under Section 115BA calculated?

The tax rate is 22% on total income plus applicable surcharge and health and education cess, without claiming specified exemptions.