AS | Ankit Sarawagi|Founder, CFOmatrix·September 2026·8 min read | Startup Tax |
Section 115BAA offers a domestic company a flat 22% corporate tax rate instead of the higher default. The trade is that you surrender a basket of incentives and, critically, you can never switch back. For most startups the maths still points one way, but the phrase “cannot be reversed” is the reason to look before you leap.
This guide explains the 22% rate and its true all-in cost, exactly what you give up, why most startups lose little by giving it up, how to make the election with Form 10-IC, and the specific checks to run first because the choice is permanent.
- Base rate
- 22% corporate tax (about 25.17% with surcharge and cess).
- MAT
- No MAT once you opt in; accumulated MAT credit lapses.
- You give up
- Additional depreciation, SEZ 10AA, most Chapter VI-A (incl 80-IAC).
- How to elect
- File Form 10-IC before the return due date.
- Reversibility
- Irreversible: it binds this year and every year after.
1 What Section 115BAA offers
Section 115BAA lets a domestic company pay income tax at a concessional 22% instead of the standard corporate rate. Add the 10% surcharge and the 4% health and education cess, and the effective rate comes to roughly 25.17%. It is optional: you choose it, and it is not tied to your date of incorporation, turnover, or DPIIT status, so almost any domestic company can consider it.
Two further points sweeten the deal. A company under 115BAA is not liable to Minimum Alternate Tax (MAT), so the parallel book-profit tax simply falls away. And the rate is stable and predictable, which makes tax forecasting far cleaner than juggling a stack of conditional deductions.
2 What you give up to get the 22% rate
The lower rate is conditional on surrendering most tax incentives. The main ones are:
- Additional depreciation on new plant and machinery.
- SEZ deduction under Section 10AA for units in Special Economic Zones.
- Most Chapter VI-A deductions, importantly including the Section 80-IAC startup tax holiday.
- The ability to carry forward and set off accumulated MAT credit; unused MAT credit lapses on switching.
- Certain other investment-linked and area-based incentives.
What you keep matters too. Ordinary business expenses, normal depreciation and routine deductions continue as usual. You are giving up the special incentives, not the everyday cost base.
3 Why most startups lose very little
Run through the list against a typical asset-light startup. Additional depreciation rewards heavy investment in new plant and machinery, which a software or services business barely has. SEZ 10AA needs a unit set up in a Special Economic Zone, which most startups do not have. MAT credit only helps if you have been paying MAT and expect large taxable profits later against which to use it, which many young companies never reach in the relevant window. And 80-IAC, the startup tax holiday, only helps if you are profitable early, which most loss-making startups are not.
Brewly, a SaaS company, has no SEZ unit, negligible plant and machinery, no accumulated MAT credit and has never been profitable enough to use 80-IAC. For Brewly, the incentives it would surrender are worth close to zero. Opting into 115BAA simply drops its effective rate to about 25.17% on any profit it does earn. There is almost nothing on the other side of the scale, so the choice is easy.
4 When you should pause before opting in
115BAA is not automatic for everyone. Pause and model both regimes if any of these apply to you.
| Benefit at stake | Why it may change the answer |
|---|---|
| Large MAT credit balance | You lose the ability to use it; that stored credit simply lapses. |
| Heavy new plant & machinery | Additional depreciation could be sizeable and is forfeited under 115BAA. |
| An SEZ unit (Section 10AA) | The SEZ deduction can be substantial and is given up. |
| Early profits and an 80-IAC claim | A live tax holiday may beat 22% in those specific years. |
Kaveri Labs operates a manufacturing unit in an SEZ and is claiming a healthy Section 10AA deduction, plus additional depreciation on recent machinery. For Kaveri, those incentives are real money. Switching to 115BAA would surrender them permanently, so Kaveri models both regimes carefully and may well stay on the old one until the SEZ benefit runs out, only then opting into 115BAA. The point is not that 115BAA is wrong for Kaveri, but that the timing and trade-offs are genuine for a company like it.
5 How to opt in, step by step
6 Your 115BAA decision checklist
- Confirm you are a domestic company; 115BAA is not for LLPs or individuals.
- Check whether you hold any accumulated MAT credit that would lapse.
- Check whether additional depreciation on plant and machinery is material to you.
- Check whether you have an SEZ unit claiming Section 10AA.
- Check whether a live 80-IAC tax holiday would beat 22% in the relevant years.
- If none of the above is material, plan to opt into 115BAA.
- Run a side-by-side of old-regime tax versus a flat 25.17% for the next few years.
- File Form 10-IC on or before the return due date, and remember the choice is permanent.
Deciding between 115BAA, 80-IAC and the old regime?
CFOmatrix runs the side-by-side for your specific numbers, checks what you would actually forgo, and helps you file Form 10-IC correctly, so an irreversible choice is made with eyes open.
Talk to CFOmatrix7 FAQs
What is Section 115BAA?
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Related guides & tools
Section 80-IAC tax holiday for startups →
DPIIT startup recognition: eligibility & process →
Company registration in India: a founder’s guide →
Which compliances apply to your company? (free tool) →
AS | Founder, CFOmatrix | Finance Strategy & Compliance CFOmatrix helps Indian startups build finance, tax and compliance functions that stand up to investor due diligence, from process and controls to the filings and the numbers behind them. |
Disclaimer: This article is general information as of September 2026 and is not tax or legal advice. Section 115BAA, MAT rules, surcharge and cess can change. Confirm your specific position with a qualified professional before making an irreversible election.