A founder of a three-year-old SaaS company told her CA in September that she wanted the 22% rate because the company had finally turned profitable. The CA asked when Form 10-IC had been filed. It had not been — nobody had filed it in any prior year, and the return for AY 2026-27 was due in a few weeks. The company paid 30% plus surcharge and cess on ₹1.8 crore of profit instead of 22% plus a 10% surcharge, and the difference — roughly ₹9 lakh — was not recoverable by revising the return. Section 115BAA is not a rate you select on the ITR. It is an election you make by filing a separate form, on time, and once made it is irreversible for every year that follows.

What the law actually requires

Section 115BAA of the Income Tax Act 1961 gives a domestic company the option to be taxed at 22% on its total income. Add the flat 10% surcharge (which applies irrespective of income level under this section — there is no ₹1 crore or ₹10 crore slab) and 4% health and education cess, and the effective rate is 25.168%.

The default, if you do not opt in, is the rate under the Finance Act for the relevant year:

30% base rate for domestic companies with turnover above ₹400 crore in FY 2023-24
25% base rate where turnover in FY 2023-24 did not exceed ₹400 crore
Surcharge of 7% where total income exceeds ₹1 crore, 12% where it exceeds ₹10 crore
4% cess on tax plus surcharge

So a company under the ₹400 crore turnover threshold with ₹2 crore of taxable income pays an effective 27.82% (25% + 7% + 4%) under the old regime, versus 25.168% under 115BAA. Above ₹10 crore of income the old-regime effective rate reaches 29.12%.

Section 115BAB is the separate 15% concessional rate for new manufacturing companies. It is not available to a company incorporated after 1 October 2019 that failed to commence manufacturing by the statutory sunset date, and it is not what most service-sector private limited companies are choosing between. This article deals with 115BAA versus the default regime.

The Form 10-IC requirement — this is the part founders miss

Rule 21AE of the Income Tax Rules 1962 requires that the option under Section 115BAA(5) be exercised in Form 10-IC, filed electronically under digital signature or EVC, on or before the due date for furnishing the return of income under Section 139(1).

For a company subject to tax audit under Section 44AB, that due date is 31 October 2026 for AY 2026-27. For a company with international or specified domestic transactions requiring Form 3CEB, the due date is 30 November 2026.

Three things follow from the wording:

The form is separate from the return. Ticking the 115BAA box in ITR-6 without filing Form 10-IC does not constitute a valid exercise of the option. The CPC has issued demand notices on exactly this basis, recomputing tax at 30% and raising the difference plus interest under Sections 234A/B/C.
A belated return kills the option for that year. If you file the return after 31 October (or 30 November) under Section 139(4), Form 10-IC filed alongside it is out of time. The Section 115BAA option is unavailable for that assessment year.
Once exercised, it cannot be withdrawn. Section 115BAA(5) states the option, once exercised for any previous year, "cannot be subsequently withdrawn for the same or any other previous year." There is no annual toggle.

What you give up

Electing 115BAA means forgoing, permanently:

Section 10AA — SEZ unit deduction
Section 32(1)(iia) — additional depreciation at 20% on new plant and machinery
Section 32AD, 33AB, 33ABA — investment and deposit-linked allowances
Sections 35(1)(ii)/(iia)/(iii), 35(2AA), 35(2AB) — weighted scientific research deductions
Section 35AD — capital expenditure on specified businesses
Chapter VI-A deductions other than Section 80JJAA (additional employee cost) and Section 80M (inter-corporate dividend)
Carried-forward losses and unabsorbed depreciation attributable to any of the above deductions — these are extinguished, not deferred

What you gain, besides the rate: Minimum Alternate Tax under Section 115JB does not apply. A 115BAA company pays no MAT at 15% on book profits. It also cannot use accumulated MAT credit under Section 115JAA — that credit lapses on election.

Practical implications

Where the old regime still wins. A company sitting on ₹4 crore of MAT credit from earlier loss-making years, or one with a large Section 35(2AB) R&D claim, or an SEZ unit in its 10AA holiday period, can easily be worse off at 22%. The comparison is not rate-versus-rate; it is post-deduction effective rate versus 25.168%.

Run the arithmetic before electing. A company with ₹3 crore book profit and ₹80 lakh of Chapter VI-A and 32(1)(iia) deductions has taxable income of ₹2.2 crore under the old regime — tax of roughly ₹61.2 lakh at 27.82%. Under 115BAA the deductions vanish, so tax is 25.168% on ₹3 crore, or ₹75.5 lakh. The old regime is ₹14.3 lakh cheaper. Reverse the numbers — minimal deductions, high profit — and 115BAA wins by a similar margin.

Where MCA21 and ROC filings intersect. The 115BAA election does not itself appear in an MCA filing, but the tax expense and deferred tax movement do. When a company elects 115BAA, Ind AS 12 / AS 22 requires remeasurement of deferred tax assets and liabilities at the new 25.168% rate in the year of election, and the write-off of any deferred tax asset recognised on MAT credit. That restatement flows into the financial statements filed in AOC-4. An auditor who sees a 22% current tax charge with unremeasured deferred tax at 25%–30% will raise it.

Note the live filing context: MCA General Circular No. 03/2026 extended the Companies Compliance Facilitation Scheme, 2026 to 31 August 2026 following the MCA21 data centre incident of 5 June 2026. If your AOC-4 or MGT-7A for earlier years is still pending, that scheme window closes in under three weeks and lets you file at normal fees plus 10% of additional fees. Backlogged financials and an unfiled 10-IC tend to travel together.

Penalty exposure. There is no separate penalty for not filing Form 10-IC — the consequence is simply that you pay the higher rate. The real cost sits in interest: Section 234B at 1% per month on shortfall of advance tax and Section 234C for deferment across the 15%-45%-75%-100% instalment schedule. A company that paid advance tax computed at 25.168% and is then assessed at 27.82% or 29.12% carries interest on the entire shortfall from June of the previous year.

Step-by-step: what to do

Compute both scenarios on FY 2025-26 audited numbers. Build a two-column schedule: taxable income after all available deductions at old-regime rates, versus book-adjusted income at 25.168%. Include MAT liability and MAT credit utilisation in the old-regime column.
Confirm your turnover base. The 25% versus 30% old-regime split for AY 2026-27 turns on turnover in FY 2023-24, not the current year. Pull that figure from the AOC-4 already filed.
Quantify what dies on election. List unabsorbed depreciation attributable to Section 32(1)(iia), any 35(2AB) carry-forward, and the MAT credit balance in the deferred tax working. That is your one-time cost of switching.
Take a board resolution. Section 115BAA does not require one, but the election is irrevocable and materially affects future tax planning. A minuted board decision under Section 179 protects the directors and satisfies the auditor's documentation request.
File Form 10-IC on the income tax portal before filing ITR-6. Log in, go to e-File → Income Tax Forms → File Income Tax Forms → Form 10-IC, select AY 2026-27, verify with DSC. Save the acknowledgement number.
Quote the 10-IC acknowledgement number in ITR-6. The return has a field for it. A mismatch or blank here is the single most common trigger for a CPC demand notice recomputing at 30%.
Reset advance tax immediately. Once elected, all four instalments for FY 2026-27 must be computed at 25.168%. Do not carry forward last year's rate assumption into the 15 September instalment.
Restate deferred tax in the same year. Remeasure DTA/DTL at 25.168% and write off any MAT credit asset. Disclose the change in the notes to accounts filed with AOC-4.

FAQ

Can I file Form 10-IC late using a condonation application?
The CBDT has issued condonation circulars in past years for taxpayers who filed the return on time and ticked the 115BAA option in ITR-6 but missed the separate 10-IC. Relief has been granted where the return itself was timely. If the return was belated, condonation has generally not been available. Do not plan around it.

If I elect 115BAA this year, can I go back to 30% next year to use a large deduction?
No. Section 115BAA(5) makes the option irrevocable for the same and every subsequent previous year. The only exit is if the company later opts into Section 115BAB, and that route is closed to most existing companies.

Does a company with nil or negative income need to file Form 10-IC?
Yes, if you want the option to apply. The election attaches to the assessment year, not to whether tax is payable. Filing in a loss year locks in 22% for future profitable years — but also extinguishes carried-forward losses attributable to the surrendered deductions, so model that first.

Is MAT credit refunded when I switch?
No. Unutilised MAT credit under Section 115JAA lapses on election under 115BAA. It is not refunded, carried forward, or set off. If your MAT credit balance is large, that alone may justify staying in the old regime until the credit is consumed.

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