Section 199 — Domestic Company Default Rate | ITA 2025

Section 199 — - DEFAULT TAX RATE FOR DOMESTIC COMPANIES

Section 199 establishes the DEFAULT corporate tax rate framework for domestic companies (NOT opting for s. 200 22% concessional or s. 201 15% new-manufacturing regimes). The default rate is per the Finance Act / Schedule applicable -- typically 25% for domestic company turnover <= INR 400 cr (s. 115BA-style preserved category) or 30% for larger companies. Plus surcharge (7%/12%/15% based on income brackets) plus 4% cess. Effective rate ranges 25-35%. Companies under default regime retain ALL Chapter VIII deductions / loss-and-depreciation set-off / carry-forward. MAT under s. 206 (1961 s. 115JB) at 15% on book profits potentially applicable -- the old-corporate-tax architecture preserved. The provision is the RESIDUAL / FALLBACK regime; ss. 200 / 201 are alternative concessional opt-ins. ARCHITECTURAL ROLE: s. 199 sets the default; s. 200 / s. 201 are alternatives to be exercised via Form 10-IC / 10-ID.

Statutory text — Income-tax Act, 2025

Marginal note -- Tax on income of domestic companies (default)

(1) Irrespective of anything contained in this Act, but subject to the provisions of Parts A, B, E and this Part (other than sections 20071 and 201) of this Chapter, the income-tax payable in respect of the total income of a person, being a domestic company, for any tax year, shall, at the option of such person, be computed at the rate of 25% subject to the following 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 of the company has been computed,—

(i) without any deduction under—

(A) section 45(2) or 47(1)(b); or

(B) Chapter VIII-C, other than the provisions of section 146; or

(C) sections specified in section 205(1)(a) to (g);

(ii) without set off of any loss carried forward from any earlier tax year, if such loss is attributable to any of the deductions referred to in sub-clause (i).

(2) The loss referred to in sub-section (1)(c)(ii) shall be deemed to have been given full effect to and no further deduction for such loss shall be allowed for any sub- sequent year.

(3) The provisions of this section shall not apply unless an option is exercised by the person in the manner as may be prescribed on or before the due date specified under section 263(1) for furnishing the first of the returns of income which such person is required to furnish and such option once exercised, shall apply to subse- quent tax years.

(4) Once the option under sub-section (3) has been exercised for any tax year, it cannot be subsequently withdrawn for the same or any other tax year, except where the person exercises option under section 200. Tax on income of certain domestic companies.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 199	INCOME-TAX ACT, 1961
Domestic-co default rate framework	1961 Schedule rates / s. 115BA
25% for turnover <= INR 400 cr	1961 Schedule (FA 2018+ progressive reduction)
30% for larger companies	1961 Schedule
MAT applicability	1961 s. 115JB (preserved for s. 199 opt-out)
Mutual exclusion with s. 200 / 201	1961 s. 115BAA(5) / s. 115BAB(7)
Full Chapter VIII deduction availability	1961 Chapter VI-A
Loss / depreciation c/f set-off preserved	1961 ss. 72-79 + s. 32(2)

STATUTORY ARCHITECTURE

DEFAULT RATE STRUCTURE (per Finance Act applicable): (a) DOMESTIC COMPANY with TURNOVER <= INR 400 CRORE in preceding year: 25% (preserved s. 115BA-class small/medium category); (b) DOMESTIC COMPANY with TURNOVER > INR 400 CRORE: 30%; (c) Plus SURCHARGE: 7% (income INR 1cr-INR 10cr); 12% (income > INR 10cr); (d) Plus 4% Health & Education Cess on aggregate. EFFECTIVE RATES: (i) Small companies (turnover <= INR 400 cr; income INR 1cr-10cr): 25% + 7% surcharge + 4% cess = ~27.82%; (ii) Larger companies (income > INR 10cr): 30% + 12% + 4% = ~34.94%. ALL DEDUCTIONS PRESERVED under default: (a) Section 32-46 PGBP allowances (depreciation / amortisation / R&D / capital expenditure); (b) Chapter VIII deductions (ss. 122-148 -- including 80-IA / 80-IB / 80JJAA employee cost / 80M inter-corporate dividend / 80LA IFSC etc.); (c) Loss carry-forward (s. 116 -- 8 years); (d) Depreciation c/f (s. 33(11) -- indefinite); (e) MAT credit (s. 206 carry-forward 15 years if MAT paid). MAT APPLICABILITY: s. 206 (1961 s. 115JB) MAT at 15% on book profits applies if normal tax < 15% × book profits. Triggers commonly: companies enjoying 80-IA / 80-IB / 80LA tax holidays; high book profits with low taxable income. MAT credit c/f 15 years for set-off against future normal tax.

ELECTION ANALYSIS -- s. 199 vs s. 200 vs s. 201

Strategic choice between three pathways: (I) s. 199 DEFAULT: 25%-30% with all deductions / MAT applicable. (II) s. 200 22% CONCESSIONAL: deductions forgone / no MAT. (III) s. 201 15% NEW MANUFACTURING: post 1-Oct-2019 incorporation / 31-Mar-2024 commencement sunset / negative list / no MAT. DECISION FRAMEWORK: (a) For DEDUCTION-HEAVY companies (R&D-intensive / 80IA-eligible / employee-cost-heavy 80JJAA / IFSC-located 80LA / inter-corp-dividend recipient 80M): default s. 199 + deductions often beats s. 200 / 201 net. Quantitatively: deductions worth >25-30% of profit make s. 199 superior. (b) For ASSET-LIGHT / LOW-DEDUCTION companies (typical IT services / consulting): s. 200 22% (or s. 201 15% for new manufacturing) wins. (c) MAT-EXPOSED companies: s. 199 + MAT may net higher than 22% under s. 200; quantitative modeling needed. (d) NEW MANUFACTURING: s. 201 15% maximally aggressive; verify all conditions.

CASE LAW / PRACTICAL

(i) ITAT decisions on turnover-threshold determination -- preceding year turnover (not current year); reorganisation / amalgamation impacts. (ii) FA 2018 reduction of 25% rate to turnover <= INR 250 cr; FA 2019 raised threshold to INR 400 cr. (iii) FA 2019 surcharge restructuring -- aligned across regimes. (iv) Practical: most listed Indian companies post 2019 have shifted to s. 200 22% (forfeit MAT credit, take rate saving).

PLANNING NOTES

(i) TURNOVER MONITORING -- INR 400 cr threshold for 25% rate; track preceding year. (ii) DEDUCTION-MAPPING -- inventory all available deductions; quantify impact under default vs alternatives. (iii) MAT CREDIT MANAGEMENT -- if substantial accumulated MAT credit, default + credit usage often optimal. (iv) S. 200 OPT-IN ANALYSIS -- assess deduction-forgone economic impact; Form 10-IC binding. (v) S. 201 ELIGIBILITY -- new manufacturing only; verify date / negative list / 20% old-plant. (vi) SURCHARGE PLANNING -- income just above INR 1 cr surcharge threshold may benefit from deferral / acceleration.

CROSS-REFERENCES

Section 200 -- 22% concessional (alternative).
Section 201 -- 15% new manufacturing (alternative).
Section 205 -- Specified deductions list.
Section 206 -- MAT for companies (s. 115JB).
Section 116 -- Loss carry-forward.
Section 33(11) -- Depreciation c/f.
Section 263 -- Return-filing due date.
Section 263(1) -- Surcharge applicability.
Finance Act applicable -- rates / surcharge / cess structure.

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