Section 200: Test the 22% option — before you elect

Irrespective of anything contained in the Act, but subject to the specified Parts and Chapter provisions, the income-tax payable for a tax year shall be at the rate of 22%, at the option of a person being a domestic company, in respect of total income computed without the listed deductions, without set-off of attributable carried-forward losses, and without the attributable unabsorbed depreciation. That is the concessional bargain in section 200 of the Income-tax Act, 2025, stated nearly in its own words, and every election decision starts from reading those conditions rather than the headline rate. The company tests the option, models what it surrenders, prices any brought-forward MAT credit, files the election in the prescribed manner, and keeps the decision file with its tax records.

What the 22% rate actually costs

The rate is conditional consideration, not a discount. Total income under the option is computed without any deduction under the two named provisions, without any deduction under the specified Chapter other than the two preserved provisions, and without the deductions in the sections cross-referenced to the conditions provision. Losses carried forward and depreciation from earlier years stay out to the extent they are attributable to those deductions, and the same exclusion reaches losses and unabsorbed depreciation deemed under the amalgamation-related provision. Those exclusions sit in section 200(1) of the Income-tax Act, 2025: deductions under section 45(2) or 47(1)(b), Chapter VIII other than sections 146 and 148, and the sections specified in section 205(1)(a) to (g), with section 116 governing the deemed losses. List every deduction, loss and depreciation balance the company holds, mark each against the exclusion list, and total the surrender before comparing rates.

A company with a Unit in an International Financial Services Centre gets one modification: the deduction in section 147 stays available to that Unit, subject to that section's conditions, under section 200(4) of the Income-tax Act, 2025.

Collect the inputs before modelling

The election is a multi-year valuation, not a single-year rate comparison. Gather these inputs first and record them in the election file.

Failure in any year kills the option forward

Where the company fails to satisfy the requirements in any tax year, the option becomes invalid for that year and subsequent years, and the other provisions of the Act apply as if the option had never been exercised. The statute then deems the excluded losses and depreciation to have been given full effect, so no further deduction for them is allowed in any later year. That one-way door sits in section 200(2)-(3) of the Income-tax Act, 2025. The modelling must therefore stress-test future years, not just the current one: a single breach year forfeits both the rate and the sheltered balances.

Do it in order

• Inventory the surrender by listing every deduction, exemption, carried-forward loss and unabsorbed depreciation balance, then marking each against the exclusion conditions of section 200(1) of the Income-tax Act, 2025. Value each marked item at the normal company rate to price what the election gives up. Also apply Rule 25(2) of the Income-tax Rules, 2026: a domestic company that has exercised the option under section 200(5) cannot claim depreciation on any block above 40% of written down value. Re-run the depreciation schedule on that cap.
• Compute both liabilities for the current year: the normal company rate on total income after deductions, against 22% on the exclusion-adjusted base. Add surcharge and cess on each route's own terms; for the option route the Finance Act, 2026 sets a flat 10% surcharge, which the normal route does not carry at modest income levels.
• Model five forward years of profit, capex-driven deductions, loss absorption and section 206(3) set-off of old section 115JAA credit on the option route, because the election, once exercised, applies to subsequent tax years and cannot be withdrawn under section 200(5)-(6) of the Income-tax Act, 2025.
• Calendar the election route and deadline. The option must be exercised in the prescribed manner on or before the due date in section 263(1) for furnishing the return of income, per section 200(5) of the Income-tax Act, 2025, and Rule 136 of the Income-tax Rules, 2026 prescribes that manner: the option is exercised in the return of income furnished under section 263(1) for the tax year. A missed or defective exercise denies the concessional treatment for the year.
• Check the new-manufacturing interaction where the company holds the separate option under section 201. If that option is rendered invalid for violating the conditions in section 205(2)(b), (c) or (d), the domestic company may then exercise the section 200 option, under section 200(7) of the Income-tax Act, 2025. Minute the route decision at board level.

Worked example: ₹30 lakh base, ₹9 lakh of deductions

Take a domestic company whose total income before its deductions is ₹30 lakh, and which holds ₹9 lakh of deductions that the option would surrender. Assume its total turnover in tax year 2024-25 did not exceed ₹400 crores, so the normal company rate is 25%; a larger company uses 30%. Those rates appear in Paragraph E of Part III of the First Schedule to the Finance Act, 2026, which section 2(10) of that Act applies to advance tax for tax year 2026-27. The 22% rate comes from section 200(1) of the Income-tax Act, 2025.

How the other columns are built. The 10% surcharge for a domestic company taxed under section 200 is in section 2(12)(b) of the Finance Act, 2026 (Table, Sl. No. 9). Under Paragraph F of Part III of the First Schedule, surcharge on a domestic company on the normal route begins only where total income exceeds ₹1 crore, so it is nil here. The Health and Education Cess of 4% on income-tax plus surcharge is in section 2(16) of the Finance Act, 2026.

On these numbers the option costs ₹2,09,040 more for the year (₹7,55,040 − ₹5,46,000). It wins only when the surrendered deductions are small relative to the base. On the normal route, also test minimum alternate tax: section 206(1) of the Income-tax Act, 2025 makes a company pay MAT where income-tax on total income falls below MAT on book profit, and section 59 of the Finance Act, 2026 sets the rate at 14% for a company other than the IFSC unit covered by section 206(1)(b)(i). With normal tax of ₹5,25,000, MAT bites if book profit exceeds ₹37,50,000 (₹5,25,000 ÷ 14%). A company that exercises the section 200 option is outside that sub-section altogether under section 206(1)(q)(ii). MAT paid on the normal route from tax year 2026-27 earns no credit, because section 59 of the Finance Act, 2026 omits section 206(1)(m) to (p). Treat it as a final cost.

The illustration holds only where the company meets section 200; the 22% answer is wrong for any company that keeps a listed deduction. Treat the figures as a decision model.

Old MAT credit: a 25% set-off path, not a lost asset

Many companies still carry minimum alternate tax credit built up under section 115JAA of the Income-tax Act, 1961. The Finance Act, 2026 gives companies that opt for the concessional rate a defined way to use it. Section 59 of the Finance Act, 2026 substitutes sub-section (3) in section 206 of the Income-tax Act, 2025, and its terms are specific:

• Who it covers. A domestic company that has exercised the option under section 200(5) or section 201(2) for a tax year beginning on or after 1 April 2026 (section 206(3)(a)).
• What credit. Any credit for tax paid that was allowed to be carried forward under section 115JAA of the 1961 Act as on 31 March 2026 (section 206(3)(b)).
• How much per year. The brought-forward credit may be set off in any tax year up to 25% of the tax payable on total income computed under the other provisions of the Act for that year (section 206(3)(b)(i)).
• What happens to the rest. The remaining credit carries forward to the next tax year (section 206(3)(b)(ii)).
• Time limit. No carry forward or set-off beyond the fifteenth tax year immediately succeeding the tax year in which the credit first became allowable under section 115JAA (section 206(3)(b)(iii)).
• Later orders. If an order under the Act reduces or increases tax payable, the credit set off moves with it (section 206(3)(c)).
• LLP conversion. If a private company converts into a limited liability partnership, the successor LLP cannot use these clauses (section 206(3)(d)).

Run the credit through the forward model year by year. Continuing the example, suppose the company opts and holds ₹4,00,000 of section 115JAA credit. Taking income-tax of ₹6,60,000 as the measure of tax payable, the yearly cap is ₹1,65,000 (25% of ₹6,60,000). If profits hold steady, the company sets off ₹1,65,000 in year one (₹2,35,000 left), ₹1,65,000 in year two (₹70,000 left) and the last ₹70,000 in year three. Whether "tax payable" means the section 200 tax, and whether it includes surcharge and cess, is a reading to settle with your adviser before relying on the cap. Map each credit vintage against its fifteen-year limit, because old vintages can expire before the 25% cap lets the company use them, and any expired credit is a real cost of the election.

Two further points belong in the file. First, section 59 of the Finance Act, 2026 also omits clauses (m) to (p) of section 206(1), the clauses that gave credit for MAT paid under the 2025 Act, so the normal route's treatment of an old balance needs its own reading rather than an assumption carried over from the 1961 Act. Second, section 206(3)(a) speaks of an option exercised "for a tax year, beginning on or after the 1st April, 2026"; a company whose option carries over from the 1961 Act should settle with its adviser how that wording applies to it.

The transition from the 1961 Act

Section 536(1) of the Income-tax Act, 2025 repeals the Income-tax Act, 1961, and section 536(2) carries savings across the 1 April 2026 boundary. For elections the savings rule is express. Section 536(2)(f) deems any option exercised by an assessee under any provision of the repealed Act, and in force immediately before the new Act commenced, to be an option exercised under the corresponding provision of the new Act. The 1961-to-2025 section mapping places section 115BAA against section 200. A company that opted under section 115BAA and had not lost the option therefore holds a section 200 option, with the no-withdrawal rule in section 200(6) and the invalidity rules in section 200(2)-(3) applying from here on.

If you get it wrong

A missed or invalid election denies concessional treatment for the year, leaving the company taxed under normal provisions after it planned, priced or contracted on 22%. A mid-stream breach is worse: the option collapses for the breach year and every later year, and the deeming rule extinguishes the sheltered balances. The invalidity and deeming consequences sit in section 200(2)-(3) of the Income-tax Act, 2025. Opting without modelling the 25% cap and fifteen-year limit on old MAT credit can also let credit expire unused. Election deadlines and the validity of the return carrying the option belong on the compliance calendar beside the return dates themselves.

FAQ

We already opted under 115BAA. Are we automatically under section 200?

Yes, if the option was in force immediately before the new Act commenced. Section 536(2)(f) of the Income-tax Act, 2025 deems an option exercised under the 1961 Act to be an option exercised under the corresponding provision of the new Act, and section 200 is the provision that corresponds to section 115BAA. The option cannot now be withdrawn, under section 200(6).

Which form exercises the election now?

There is no separate election form for tax year 2026-27 onward. Rule 136 of the Income-tax Rules, 2026 requires the option under section 200(5) of the Income-tax Act, 2025 to be exercised in the return of income furnished under section 263(1) for that tax year, on or before the section 263(1) due date. Keep the filed return and acknowledgement in the election file.

Do we lose our MAT credit if we opt?

No. Section 206(3), inserted by section 59 of the Finance Act, 2026, lets an opting domestic company set off section 115JAA credit carried forward as on 31 March 2026 up to 25% of its tax payable each year, with the balance carried forward, but not beyond the fifteenth tax year after the credit first became allowable. The cap and the time limit are what to model.

Can we try 22% for one year and revert?

No. Once exercised, the option applies to subsequent tax years and cannot be withdrawn for the same or any other tax year, under section 200(5)-(6) of the Income-tax Act, 2025. Model reversion as impossible.

What if we breach a condition in year three?

The option fails for year three and all later years, with the deeming rule extinguishing the sheltered balances, under section 200(2)-(3) of the Income-tax Act, 2025. Run an annual condition check before each return.

Does 22% cover all our income?

Section 200(1) is subject to Parts A, B and E of Chapter XIII and the rest of its own Part (other than sections 199 and 201), so special-rate streams are computed on their own terms outside the headline comparison. Split the base before comparing.

Sources

• Income-tax Act, 2025, section 200 (22% domestic-company option, exclusions, IFSC modification, deadline, no withdrawal, invalidity, section 201 interaction)
• Income-tax Act, 2025, section 206(1) (minimum alternate tax; clause (q)(ii) exclusion for companies exercising the option)
• Finance Act, 2026, section 59 (MAT rate 14%; omission of section 206(1)(m) to (p); substituted section 206(3) on section 115JAA credit)
• Finance Act, 2026, section 2(10), 2(12)(b) and 2(16), and First Schedule Part III, Paragraphs E and F (company rates, surcharge and cess for tax year 2026-27 advance tax)
• Income-tax Rules, 2026, Rule 136 (option under section 200(5) exercised in the return of income under section 263(1))
• Income-tax Act, 2025, section 536(1) and 536(2)(f) (repeal; options under the 1961 Act deemed exercised under the corresponding provision)
• The company's deduction inventory, loss registers, MAT credit ledger and forward profit model

What to send for a review

Send your existing election status, deduction and loss inventories, section 115JAA credit ledger by year, tax year 2024-25 turnover, normal-provision computation and forward profit outlook. Bring the provision-by-provision surrender schedule so the trade is priced line by line. The review returns your regime-election decision and lost-benefit model.