Legal Reference
Section 115BAA (22%), Section 115BAB (15% new manufacturing), Section 206 (MAT 15%), Section 115AD (40% foreign company), ITA 2025
1. Corporate Tax Rate Structure
| Company Type | Tax Rate | Effective Rate (with surcharge and cess) |
|---|
| Domestic company (default) | 30% | ~34.94% (12% surcharge + 4% cess) |
| Domestic company (Section 115BAA) | 22% | 25.17% (10% surcharge + 4% cess) |
| New manufacturing company (Section 115BAB, post Oct 2019) | 15% | 17.01% (10% surcharge + 4% cess) |
| Foreign company | 40% | ~43.68% |
2. Section 115BAA: 22% Flat Rate
Domestic companies can opt for 22% flat tax rate under Section 115BAA — but must give up all exemptions and deductions except depreciation under Section 35. Cannot claim: Section 10AA (SEZ), Section 80IC, Chapter VIII deductions. Once opted, cannot switch back. Most large companies have opted — 22% (effective 25.17%) is lower than the 30%+ default. No MAT after opting 115BAA.
3. Section 115BAB: 15% for New Manufacturing
New domestic manufacturing companies incorporated on or after 1 October 2019 and commencing manufacturing by 31 March 2024 can opt for 15% tax. Conditions: must not be formed by splitting/restructuring existing business; cannot use second-hand plant and machinery (beyond 20% of total); company itself must manufacture — no trading/services. Effective rate 17.01%. MAT not applicable.
4. Minimum Alternate Tax (MAT)
MAT at 15% of book profits applies to companies that do NOT opt for Section 115BAA or 115BAB. MAT ensures companies with zero taxable income (due to deductions) still pay at least 15% of accounting profits as tax. MAT credit (MAT paid minus normal tax) can be carried forward for 15 years and offset when normal tax exceeds MAT. Book profit = P&L net profit with prescribed adjustments.
5. Dividend Tax: Post-DDT Era
Dividend Distribution Tax (DDT) was abolished from 1 April 2020. Under ITA 2025, companies pay no additional tax on dividend distribution. Dividends are taxable in shareholder hands at slab rates. TDS at 10% is deducted by the company under Section 393 (above Rs 5,000 threshold). The effective double taxation (30% corporate + slab rate dividend) is the key consideration for promoter-directors deciding on salary vs dividend payout.
6. Surcharge on Companies
| Company Type | Surcharge |
|---|
| Domestic company (income up to Rs 1 crore) | Nil |
| Domestic company (Rs 1–10 crore) | 7% |
| Domestic company (above Rs 10 crore) | 12% |
| Companies opting 115BAA/115BAB | 10% (fixed) |
| Foreign company | 2% (up to Rs 1 crore), 5% (above) |
7. Why TaxClue
Corporate tax planning — regime selection, MAT analysis, dividend vs salary optimisation — requires integrated advisory. TaxClue provides complete corporate tax advisory and return filing. Contact us under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
What is the corporate tax rate in India?
Under ITA 2025, domestic companies pay 30% default rate (effective ~34.94% with surcharge and cess). Companies opting for Section 115BAA pay 22% (effective 25.17%) but cannot claim deductions/exemptions. New manufacturing companies incorporated after October 2019 opting for Section 115BAB pay 15% (effective 17.01%). Foreign companies pay 40%. Most large established companies have opted for Section 115BAA.
What is Section 115BAA?
Section 115BAA allows domestic companies to pay tax at a flat 22% rate (effective 25.17% with fixed 10% surcharge and 4% cess). To opt in, the company must give up all deductions and exemptions except depreciation. This includes giving up SEZ deductions, Chapter VIII deductions, and all other exemptions. Once opted, the company cannot revert. MAT does not apply after opting 115BAA. The option is exercised by filing Form 10-IC before the due date of the first return after the option year.
What is Minimum Alternate Tax?
MAT (Minimum Alternate Tax) under Section 206 of ITA 2025 ensures that companies with zero tax liability (due to exemptions and deductions) still pay at least 15% of their accounting book profits as tax. It applies to companies that have not opted for Section 115BAA or 115BAB. The difference between MAT paid and normal tax (if MAT exceeds normal tax) becomes MAT credit, carried forward for 15 years and offset in future years when normal tax exceeds MAT.
Which is better: 115BAA or default rate?
Section 115BAA (22% flat) is generally better if the company is not claiming significant deductions or exemptions that reduce the effective tax below 22%. For companies with large SEZ deductions, Section 80IC (hill area/ITES), or R&D deductions that bring effective tax well below 22%, the default regime may be better. The decision requires computing tax under both regimes with all applicable deductions before opting. Once opted into 115BAA, the choice is irrevocable.
Can a company pay both MAT and normal tax?
No. In any given year, a company pays either normal tax or MAT — whichever is higher. If normal tax (computed on taxable income after deductions) exceeds 15% of book profit, the company pays normal tax. If MAT (15% of book profit) exceeds normal tax, the company pays MAT and generates MAT credit for the excess. Companies opting for Section 115BAA or 115BAB are not subject to MAT at all.
