Sections 199 and 201 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Sections 199 and 201 let a domestic company that manufactures or produces articles opt for a lower tax rate: 25% under section 199 for a company set up and registered on or after the 1st March, 2016, and 15% on its business income under section 201 for a company set up and registered on or after the 1st October, 2019 that began manufacturing on or before the 31st March, 2024. Each option is tied to conditions on deductions and losses. This article reads both as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026.
Under section 199, a domestic company set up and registered on or after 1 March 2016, engaged only in manufacture or production (and research in, or distribution of, its articles), may opt for tax at 25%, without the listed deductions. Under section 201, a company set up and registered on or after 1 October 2019 that commenced manufacturing on or before 31 March 2024 may opt for 15% on business income, 22% on two other kinds of income and 30% on income deemed under section 205(4). Each option is exercised by the due date for the first return and cannot later be withdrawn, with limited exceptions.
Scope
Both sections are in Chapter XIII, Part C, the new tax regime. The Act came into force on the 1st April, 2026 (section 1(3)), save as otherwise provided. The rates here are those printed in the sections; later amendments, rules and notifications should be checked.
The companion provisions are section 200 (the 22% regime) and section 202 (individuals and others); the conditions are in section 205, covered in our article on section 205. Special rates on capital gains are in section 198. For the Chapter overview, see Chapter XIII of the Income-tax Act, 2025. If your company is choosing between regimes, our tax planning advisory team can help compare them.
Section 199: manufacturing domestic companies at 25%
Section 199(1): the option and conditions
Irrespective of anything in the Act, but subject to Parts A, B, E and Part C of the Chapter (other than sections 200 and 201), the income-tax payable on the total income of a domestic company for any tax year is, at the option of the company, computed at the rate of 25%, subject to these conditions:
- (a) the company has been set up and registered on or after the 1st March, 2016;
- (b) the company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it; and
- (c) the total income has been computed (i) without any deduction under (A) section 45(2) or 47(1)(b), (B) Chapter VIII-C other than the provisions of section 146, or (C) the sections specified in section 205(1)(a) to (g); and (ii) without set off of any loss carried forward from any earlier tax year, if the loss is attributable to any of the deductions referred to in sub-clause (i).
A printing slip: in the opening words of sub-section (1), "section 200" is printed with a stray "71" after it; it is not part of the text. The deduction under section 146 (additional employee cost) is kept; see our article on section 146.
Section 199(2) to (4)
- The loss referred to in sub-section (1)(c)(ii) is deemed to have been given full effect to, and no further deduction for it is allowed for any subsequent year (sub-section (2)).
- The section does not apply unless the option is exercised in the prescribed manner on or before the due date under section 263(1) for furnishing the first of the returns of income the person is required to furnish, and once exercised it applies to subsequent tax years (sub-section (3)).
- Once exercised for any tax year, the option cannot be subsequently withdrawn for the same or any other tax year, except where the person exercises the option under section 200 (sub-section (4)).
Section 201: new manufacturing domestic companies
Section 201(1) and the Table
Subject to the same Parts, the income-tax payable on the total income of a domestic company specified in column B of the Table is, at its option, computed at the rates in column C if the conditions in column D are fulfilled.
| Serial number | Assessee (column B) | Total income and rate of tax (column C) | Conditions (column D) |
|---|---|---|---|
| 1 | A domestic company engaged in business of manufacture or production of any article or thing | (a) 15% on the total income other than the income mentioned in (b), (c) and (d); (b) 22% (without any deduction or allowance in respect of any expenditure or allowance) on income which has neither been derived from nor is incidental to manufacturing or production of an article or thing, and in respect of which no specific rate of tax has been provided separately under Parts A, B, E and Part C; (c) 22% on short-term capital gains derived from transfer of a capital asset on which no depreciation is allowable under the Act; (d) 30% on the income deemed so under section 205(4) | The company (a) exercises the option in the manner provided in sub-section (2); (b) has been set up and registered on or after the 1st October, 2019; (c) has commenced manufacturing or production of an article or thing on or before the 31st March, 2024; (d) has its total income computed as per sub-section (3); and (e) fulfils all the conditions in sub-section (5) of this section and section 205(2) |
The Table is printed across several lines with the entries broken by the narrow columns; the reading above follows the order of the printed lines.
Section 201(2): exercising the option
The option is exercised in the prescribed manner, subject to:
- (a) it is exercised on or before the due date under section 263(1) for furnishing the first of the returns of income for any tax year;
- (b) once exercised, it applies to subsequent tax years;
- (c) once exercised for any tax year, it cannot be subsequently withdrawn for the same or any other tax year; and
- (d) if the assessee fails to fulfil the conditions in column D of serial number 1 of the Table in any tax year, (i) the option becomes invalid for that tax year and subsequent tax years, and (ii) the other provisions of the Act apply as if the option had not been exercised for that tax year and subsequent tax years.
Section 201(3) and (4): computation
For sub-section (1), total income is computed:
- (a) without any deduction under (i) section 45(2) or 47(1)(b); (ii) Chapter VIII other than section 146 or 148; or (iii) the sections specified in section 205(1)(a) to (g); and
- (b) without set off of any loss or allowance for unabsorbed depreciation deemed so under section 116, if attributable to any of the deductions in clause (a).
The loss and depreciation, or both, specified in sub-section (3)(b) are deemed to have been given full effect to, and no further deduction for them is allowed for any subsequent year (sub-section (4)). Section 148 is the inter-corporate dividend deduction; see our article on sections 148 to 150.
Section 201(5): amalgamation
In case of an amalgamation, the option under the section remains valid in the case of the amalgamated company only, and if the conditions in column D of serial number 1 of the Table continue to be fulfilled by that company.
Comparing the two
| Point | Section 199 | Section 201 |
|---|---|---|
| Rate | 25% on total income | 15% on business income; 22% on two other heads of income; 30% on income deemed under section 205(4) |
| Set up and registered | on or after 1 March 2016 | on or after 1 October 2019 |
| Manufacturing began | not stated | on or before 31 March 2024 |
| Business restriction | no business other than manufacture or production (and research or distribution of the same articles) | engaged in business of manufacture or production |
| Option withdrawal | not allowed, except by opting under section 200 | not allowed |
The conditions of section 205 apply to section 201; the column D condition (e) names sub-section (5) of section 201 and section 205(2).
A worked example
Names and amounts are invented; the rates and dates are as printed.
Aarav Auto Components Private Limited was set up and registered on the 15th November, 2019 and began manufacturing in September 2022. It opts under section 201 by the due date for its first return. In the tax year its total income is Rs. 10,00,000 from manufacturing, plus Rs. 1,00,000 from interest on an unconnected deposit (no specific rate separately provided under Parts A, B, E and Part C) and short-term capital gains of Rs. 2,00,000 on land with no depreciation.
- Rs. 10,00,000 at 15% = Rs. 1,50,000.
- Rs. 1,00,000 at 22% (without any deduction or allowance for expenditure) = Rs. 22,000.
- Rs. 2,00,000 at 22% = Rs. 44,000.
- Tax before surcharge and cess: Rs. 1,50,000 + Rs. 22,000 + Rs. 44,000 = Rs. 2,16,000. The Act as printed in these sections states no surcharge or cess figure.
A company set up on the 1st February, 2016 cannot use either section; section 199(1)(a) needs registration on or after 1 March 2016 and section 201 needs 1 October 2019.
Need help choosing a company tax option?
The option is exercised once, by the first return's due date, and then runs for later years. Our tax planning advisory service can compare sections 199, 200 and 201 for your company before you commit.
Key takeaways
- Section 199 gives 25% to a company set up and registered on or after 1 March 2016 engaged only in manufacture or production and related research or distribution.
- Section 201 gives 15% on business income to a company set up and registered on or after 1 October 2019 that commenced manufacturing on or before 31 March 2024.
- Both options require total income to be computed without the listed deductions and loss set-offs.
- The option is exercised by the due date for the first return and cannot be withdrawn later (section 199 allows a move to section 200).
- A failure of the section 201 conditions makes the option invalid from that year.
Read next
- Section 200: the 22% company regime
- Sections 203 and 204: resident co-operative societies and new manufacturing co-operatives
- Section 205: conditions for concessional tax
- Section 202: new tax regime
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.