Choose a legally available regime before comparing percentages
For a domestic company’s FY 2025–26 return, a lower headline rate is useful only if the company qualifies, has a valid election where required, and computes the correct taxable base. This decision sheet addresses AY 2026–27 Part A selections and tax arithmetic rather than a general history of concessional taxation. The governing provisions are the Income-tax Act, 1961 and the applicable annual rates, not mechanically substituted section numbers or new tax-year MAT rules under the 2025 Act. Checked on 27 October 2026. Department domestic-company rates for AY 2026–27.
Use FY 2023–24 turnover for the ordinary 25% test
The Department’s AY 2026–27 rate table gives 25% where total turnover or gross receipts in FY 2023–24 do not exceed ₹400 crore; otherwise the ordinary domestic-company rate is 30%. The form asks this exact base-year question in Part A-GEN filing-status item (f). Do not use FY 2025–26 revenue merely because those financial statements accompany the return. A normal 25% entitlement does not require Form 10-IB: that form belongs to the distinct section 115BA election. Resolve unusual cases without base-year operations against the applicable annual rate provision rather than inventing turnover. Department domestic-company rates for AY 2026–27.
Test the three option routes separately
Section 115BA offers 25% to the qualifying manufacturing domestic company set up and registered on or after 1 March 2016, subject to its activity, incentive and first-return election conditions. Section 115BAA offers 22% to qualifying domestic companies satisfying its computation restrictions, with an election available for a qualifying year under section 115BAA(5). Section 115BAB offers 15% on qualifying manufacturing income subject to registration on or after 1 October 2019 and commencement of manufacturing or production on or before 31 March 2024, plus the other conditions. It is not an open invitation for a factory commencing in 2026. Software development and the other expressly excluded activities are not qualifying manufacturing for this purpose. Income-tax Act, 1961: sections 115BA, 115BAA, 115BAB, 115JB and 115JAA.
Prepare separate taxable bases, not one profit multiplied four times
Rebuild normal income and the proposed option income from the same reconciled books. Under 115BAA, barred incentives include section 10AA, additional depreciation and the specified deductions listed in subsection (2); Chapter VI-A deductions are restricted to 80JJAA and 80M, subject to their conditions. Section 115BAA(4) separately preserves qualifying IFSC unit relief under 80LA. Loss/depreciation attributable to barred incentives is restricted and deemed given effect; ordinary otherwise eligible losses are not all erased. Section 115BA and 115BAB have their own lists and attribution wording. Do not import the full 115BAA list into every route without reading the subsection. Income-tax Act, 1961: sections 115BA, 115BAA, 115BAB, 115JB and 115JAA.
Compute surcharge, relief and cess in that order
Under normal domestic rates, surcharge is nil at total income up to ₹1 crore, 7% above ₹1 crore up to ₹10 crore, and 12% above ₹10 crore. Marginal relief limits the income-tax-plus-surcharge increase at those thresholds; add 4% health and education cess after the relieved amount. Under 115BAA/115BAB, surcharge is 10% irrespective of income, so the ordinary ₹1 crore/₹10 crore surcharge cliff relief is not applicable to those flat-surcharge calculations. On a wholly ordinary 25% base, effective rates away from relief zones are 26%, 27.82% and 29.12%; the corresponding 30% rates are 31.2%, 33.384% and 34.944%. The 22% option yields 25.168%; qualifying 15% income yields 17.16%. These are not universal rates for special-rate income. Department domestic-company rates for AY 2026–27.
Break out special income under 115BAB
The 15% headline is not a rate on every receipt. Income neither derived from nor incidental to manufacturing, where the Chapter provides no separate specific rate, is taxed at 22% under the first proviso to 115BAB(1), without deduction of expenditure or allowance against that category. The statute separately prescribes 22% for specified short-term capital gains on nondepreciable assets and 30% for the excess-profit income identified in its second proviso to subsection (6). Other specially taxed income must follow its own applicable provision. Classify each stream before applying surcharge and cess. Section 115BAB.
Put MAT and the cost of a continuing election into the decision
A normal or 115BA company may still face section 115JB MAT; eligible prior credit can affect current cash tax. Valid 115BAA/115BAB options remove MAT and the AY validation prevents MATC under both. Do not compare normal tax after credit with concessional tax before adding the deductions that must be surrendered. Under 115BAA, once elected, the option cannot subsequently be withdrawn. A 115BAB condition failure is not a voluntary annual switch: the statute governs invalidity and only specified failures permit a further 115BAA option. Prepare a forward cash-flow model using separately verified future law rather than assuming that this AY’s rates continue forever.
Tie the signed decision sheet to the filed return
Part A-GEN filing-status item (e) distinguishes an existing option from a new current-year election and records its first AY, filing date and acknowledgement. Match that selection to actual form evidence, the loss/depreciation restrictions, Schedule VI-A and applicable MAT/MATC status. Ordinary and specially taxed income feed Part B-TTI 2a/2b, with total at 2c, surcharge 2diii, cess 2e and gross normal liability 2f; independently reconcile the applicable MAT comparison at 1d and 3. A mathematically valid return does not establish eligibility for a regime. AY 2026–27 ITR-6: Part A-GEN and Part B-TTI.
Applicable primary references
Department domestic-company rates for AY 2026–27 Income-tax Act, 1961: sections 115BA, 115BAA, 115BAB, 115JB and 115JAA AY 2026–27 ITR-6: Part A-GEN and Part B-TTI AY 2026–27 validation rules Section 115BAA Section 115BAB
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules. Tax figures show the computation stage; the final net payable or refund is rounded under section 288B to the nearest ₹10 after all applicable adjustments.
Illustrative example 1: Same ordinary taxable base
An eligible domestic company has ₹80,00,000 ordinary taxable income under both normal 25% and 115BAA computations, with MAT below normal tax and no MAT credit. Normal tax is ₹20,00,000 plus ₹80,000 cess = ₹20,80,000. Under 115BAA, tax ₹17,60,000 plus 10% surcharge ₹1,76,000 and cess ₹77,440 totals ₹20,13,440. Current-year difference is ₹66,560.
Illustrative example 2: Lost deduction changes the choice
Before a deduction permitted only in the normal computation, the comparable base is ₹80,00,000. A verified ₹20,00,000 deduction gives normal taxable income ₹60,00,000 and 25% plus cess tax ₹15,60,000. The 115BAA base remains ₹80,00,000 and tax ₹20,13,440. Here the lower headline rate costs ₹4,53,440 more, assuming MAT does not increase normal tax and no other credits.
Illustrative example 3: 30% company above ₹1 crore
Ordinary taxable income is ₹2,00,00,000 under both eligible alternatives. At normal 30%, basic tax ₹60,00,000 plus 7% surcharge ₹4,20,000 plus cess ₹2,56,800 totals ₹66,76,800; marginal relief does not reduce this amount. At 115BAA, ₹44,00,000 plus ₹4,40,000 plus ₹1,93,600 = ₹50,33,600. Difference is ₹16,43,200, before considering MAT, credit and differing deductions.
Illustrative example 4: Marginal relief just above ₹1 crore
For normal 25% income of ₹1,01,00,000, basic tax is ₹25,25,000 and unrelieved 7% surcharge ₹1,76,750: subtotal ₹27,01,750. The ceiling is tax at ₹1 crore, ₹25,00,000, plus excess income ₹1,00,000 = ₹26,00,000. Relief is ₹1,01,750. Add 4% cess ₹1,04,000, giving ₹27,04,000; do not add cess before testing the ceiling.
Illustrative example 5: Marginal relief just above ₹10 crore
At normal 25% on ₹10,01,00,000, basic tax is ₹2,50,25,000 and 12% surcharge ₹30,03,000: subtotal ₹2,80,28,000. The ₹10 crore threshold tax including 7% surcharge is ₹2,67,50,000; adding excess income ₹1,00,000 gives ceiling ₹2,68,50,000. Relief is ₹11,78,000; cess ₹10,74,000 gives total ₹2,79,24,000. This illustration has no specially taxed income.
Illustrative example 6: 115BAB mixed income
Assume an otherwise eligible existing 115BAB company has qualifying manufacturing income ₹80,00,000 and separate nonincidental income ₹20,00,000 falling under the 22% first proviso, already computed without category deductions. Basic tax is ₹12,00,000 + ₹4,40,000 = ₹16,40,000. Add 10% surcharge ₹1,64,000 and cess ₹72,160: ₹18,76,160. Applying 17.16% to all ₹1 crore would produce ₹17,16,000 and understate this model by ₹1,60,160.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm domestic-company status | Residence and section 2(22A) classification evidence. |
| 2 | Fix the ordinary rate | FY 2023–24 turnover and Part A item (f). |
| 3 | Test each option’s availability | Incorporation, commencement, activity and continuing-condition file. |
| 4 | Find election evidence | Correct form, first AY, date and acknowledgement. |
| 5 | Recompute bases separately | Normal and option book-to-tax bridges. |
| 6 | Tag restricted deductions and losses | Attribution analysis, VI-A and depreciation schedules. |
| 7 | Split specially taxed streams | Legal provision and separate income computation. |
| 8 | Calculate surcharge and relief | Threshold comparisons before 4% cess. |
| 9 | Compare MAT and credit where applicable | Normal-regime cash tax and blocked-credit consequences. |
| 10 | Approve and reconcile the selection | Part A, Part B-TTI, signed assumptions and submitted JSON. |
Sixteen practitioner FAQs
1. Is ₹400 crore tested against FY 2025–26 revenue?
For AY 2026–27 the stated normal 25% test uses FY 2023–24 turnover or gross receipts.
2. Is Form 10-IB required for every normal 25% company?
No. Ordinary turnover-based 25% and the optional section 115BA route are distinct legal bases.
3. Can an eligible domestic company elect 115BAA in a later year?
Section 115BAA(5) permits the option for a qualifying year by its applicable section 139(1) deadline; it need not be the first company return.
4. Can a 2026 manufacturing start claim 115BAB automatically?
No. The statutory manufacturing commencement cut-off is 31 March 2024, with other conditions also required.
5. Does software development qualify as manufacturing under 115BAB?
The statutory explanation expressly excludes development of computer software in any form or media.
6. Is 25.168% a substitute for checking taxable income?
No. It is the composite 22%, 10% surcharge and 4% cess rate on a qualifying ordinary base, not a computation of that base.
7. Does the ₹1 crore surcharge threshold apply to 115BAA?
The surcharge is 10% irrespective of income under that option, rather than the normal threshold bands.
8. When is normal marginal relief calculated?
Compare income-tax plus surcharge with the relevant threshold ceiling before adding cess.
9. Can special-rate income be put through the ordinary-rate examples?
No. Split the income and apply the relevant special provision before calculating the appropriate surcharge and relief.
10. Are all 115BAB receipts taxed at 15%?
No. Its provisos and other special-rate provisions govern different streams, including the specified 22% and 30% categories.
11. Does opting for 115BA switch off MAT?
No. The separate MAT exclusion concerns valid 115BAA and 115BAB options.
12. Do all brought-forward losses disappear on a 115BAA election?
No. Identify the portion attributable to prohibited deductions; separately test the otherwise eligible loss balance.
13. Is ordinary tax depreciation also prohibited?
The listed bar concerns additional depreciation; ordinary depreciation remains subject to the applicable statutory conditions and prescribed computation.
14. Are 80JJAA and 80M automatic deductions under 115BAA?
No. The regime permits their consideration but each deduction’s substantive and procedural conditions still apply.
15. Can 115BAA be changed back next year if tax rises?
The election cannot subsequently be withdrawn; do not treat the return’s dropdown as an annual free choice.
16. What proves the final selection was implemented?
Reconcile the signed rate decision, form acknowledgement, Part A regime fields, income schedules and Part B-TTI in the actual filed return.
Conclusion
Build an AY 2026–27 corporate rate decision sheet using the correct base-year turnover, taxable bases, surcharge, marginal relief and election consequences.