Corporate Tax Rates 2026-27: 22% and 15% New Manufacturing Company Regimes (Income Tax Act 2025)

Under the Income Tax Act 2025, a domestic company can opt for a lower flat rate of tax instead of the regular computation. Section 200 gives 22% to any domestic company, section 201 gives 15% to certain new manufacturing companies, and section 199 gives 25% to certain manufacturing companies set up on or after 1 March 2016. Each rate is an option, and each comes with a price: you give up a defined list of deductions.

This guide explains who qualifies, what you give up, how the option is exercised and what happens if you break a condition. Every figure is taken from sections 199, 200, 201 and 205 and rule 25 of the Income-tax Rules, 2026, as amended by the Finance Act, 2026 (tax year 2026-27). The rates below are base rates; surcharge and cess are not covered here.

What are the corporate tax rates for domestic companies under the Income Tax Act 2025?

Section	Rate	Who can opt	Key condition
200	22%	Any domestic company	Income computed without the listed deductions (see below)
199	25%	Domestic company set up and registered on or after 1 March 2016	Only manufacture or production, plus related research or distribution
201	15% on business income; 22% or 30% on specified items	Domestic company in manufacture or production, set up and registered on or after 1 October 2019	Production must have started on or before 31 March 2024; conditions of section 205(2) apply

A "domestic company" is the person the three sections are written for. A foreign company is not covered by these options.

What must a company give up to use these rates?

The total income is computed without certain deductions and without setting off losses linked to them. The common core is the same in all three sections.

Not allowed under the option	Section 200 (22%)	Section 201 (15%)	Section 199 (25%)
Scientific research deduction under section 45(2); agricultural extension or skill development project under section 47(1)(b)	Yes	Yes	Yes
Chapter VIII deductions (deductions in computing total income), except section 146 (additional employee cost) and, for 22% and 15%, section 148 (certain inter-corporate dividends)	Yes, except 146 and 148	Yes, except 146 and 148	Chapter VIII-C only, except 146
Deductions or exemptions under sections 33(8), 45(3)(a), (b) or (c), 46, 47(1)(a), 48, 49 and 144 (section 205(1)(a) to (g))	Yes	Yes	Yes
Set-off of carried-forward loss or depreciation attributable to those deductions	Yes	Yes (loss and unabsorbed depreciation under section 116)	Loss only

The loss or depreciation that is blocked is treated as having been given full effect already. You cannot claim it in a later year (sections 199(2), 200(3) and 201(4)).

For IFSC units, section 200(4) modifies the rule: a Unit in the International Financial Services Centre that has opted under section 200(5) can still claim the section 147 deduction, if it meets that section's conditions.

Who qualifies for the 15% rate for new manufacturing companies (section 201)?

Section 201(1), Table Sl. No. 1, lists the conditions. The company must:

1. be a domestic company engaged in manufacture or production of an article or thing;
2. have been set up and registered on or after 1 October 2019;
3. have commenced manufacturing or production on or before 31 March 2024;
4. compute its total income as section 201(3) requires (without the deductions above);
5. exercise the option as section 201(2) requires; and
6. meet all the conditions in section 201(5) and section 205(2).

The 15% rate is not applied to the whole income. Column C of the table splits the income into four buckets:

Income	Rate
Business income from manufacturing or production (everything not in the three rows below)	15%
Income neither derived from nor incidental to manufacturing, with no specific rate provided elsewhere in Parts A, B, E or this Part (no deduction or allowance for any expenditure)	22%
Short-term capital gains on transfer of a capital asset on which no depreciation is allowable	22%
Profits deemed to be income under section 205(4) (close-connection transactions)	30%

What are the extra conditions in section 205(2)?

For the 15% regime, the company must satisfy all of these:

• No split-up or reconstruction. The business is not formed by splitting up or reconstructing an existing business, except the revival cases covered by section 140(4) (section 205(2)(a)).
• No old machinery beyond a limit. It does not use previously used machinery or plant, other than "permitted" imported plant, or second-hand plant whose total value is within 20% of the total value of plant and machinery used (section 205(2)(b)).
• No former hotel or convention centre building on which a section 80-ID deduction of the 1961 Act was claimed and allowed (section 205(2)(c)).
• Only manufacturing. No business other than manufacture or production of an article or thing, and research in relation to, or distribution of, what it makes (section 205(2)(d)).

If a difficulty arises with the machinery, building or business conditions, the Board may issue guidelines with the Central Government's previous approval (section 205(2), last part). Guidelines are laid before Parliament under section 205(3).

What counts as "manufacture or production"?

Section 205(5)(a) says it includes generation of electricity. It does not include:

• development of computer software in any form or media;
• mining;
• conversion of marble blocks or similar items into slabs;
• bottling of gas into cylinders;
• printing of books or production of cinematograph film; or
• any other business the Central Government notifies.

"Permitted machinery or plant used outside India" means plant previously used abroad by someone else, never used in India before installation, imported into India, and on which no depreciation has been or can be allowed for any earlier period (section 205(5)(b)(ii)).

How do you choose between the three options?

The diagram shows eligibility only. A company that qualifies for more than one can only be in one regime for a tax year, because each section opens with "subject to ... (other than sections ...)" and excludes the other two. Which rate is better depends on the company's own numbers, so compute each before you opt.

How and when is the option exercised?

• Section 199(3): exercise the option, in the manner prescribed, on or before the due date under section 263(1) for furnishing the first return of income the company is required to furnish. It then applies to later tax years.
• Section 200(5): exercise it in the prescribed manner on or before the due date under section 263(1) for furnishing the return of income. It then applies to subsequent tax years.
• Section 201(2): exercise it in the prescribed manner on or before the due date under section 263(1) for furnishing the first return for any tax year. It then applies to subsequent years.

Once exercised, the option cannot be withdrawn for the same or any other tax year (sections 200(6) and 201(2)(c)). Section 199(4) is the one exception: a company that opted under section 199 can move to section 200, because section 199(4) permits withdrawal "where the person exercises option under section 200". Rule 25 of the Income-tax Rules, 2026 refers to these options, but the detailed form and mode of exercising the option are not in the section text, so check the current notified procedure before filing.

What happens if a condition is broken?

Section	Consequence
200(2)	If the requirements of section 200(1) are not met in a tax year, the option becomes invalid for that year and all later years. The rest of the Act applies as if no option had been exercised.
201(2)(d)	If the Sl. No. 1, column D conditions are not met in any tax year, the option is invalid for that year and later years, and other provisions apply as if it had not been exercised.
200(7)	A company whose section 201 option became invalid because of section 205(2)(b), (c) or (d) (machinery, building or business-type conditions) may exercise the section 200 option.
201(5)	On amalgamation, the section 201 option stays valid only for the amalgamated company, and only if the column D conditions continue to be met.

Does minimum alternate tax (MAT) apply to a company that opts for 22% or 15%?

No. Section 206(1)(a) makes a company pay minimum alternate tax (MAT) at 14% of book profit when its normal tax is lower. Section 206(1)(q)(ii) says this MAT provision does not apply to a person who has exercised the option under section 200(5) or section 201(2). A company under the regular computation, or one under section 199, is not covered by that exclusion.

Old MAT credit is dealt with in section 206(3). For a domestic company that opts under section 200(5) or 201(2) for a tax year beginning on or after 1 April 2026, credit carried forward as on 31 March 2026 can be set off each year up to 25% of the tax payable on the total income computed under the other provisions of the Act. The balance is carried forward, and no set-off is allowed beyond the fifteenth tax year after the year the credit first arose (section 206(3)(b)).

Is there a depreciation cap for companies under these options?

Yes. Rule 25(2), Sl. No. 1 says depreciation under section 33(3) on any block of assets cannot exceed 40% of the written down value of that block for a domestic company that has exercised the option under section 199(3), 200(5) or 201(2), if the conditions in the rule are fulfilled. For rates by block of assets, see our guide on depreciation under the Income Tax Act 2025.

Worked example 1: 22% (section 200) against 25% (section 199)

Assumptions (tax year 2026-27): Sunrise Packaging Pvt Ltd is a domestic manufacturing company registered on 10 June 2018. Its total income, computed without the deductions blocked by sections 199 and 200 (and with no loss or depreciation attributable to them), is Rs 90,00,000. Base rates only; surcharge and cess are ignored.

Step	Section 200 at 22%	Section 199 at 25%
Total income	Rs 90,00,000	Rs 90,00,000
Rate	22%	25%
Tax (Rs 90,00,000 x rate)	Rs 19,80,000	Rs 22,50,000
Difference	Rs 2,70,000 (22,50,000 minus 19,80,000)

If this company had a Rs 10,00,000 scientific research claim under section 45(2), it would have to be left out of the income to use either option. The comparison with the regular computation (where that deduction would apply) needs the regular rate, which is outside this article, so run that comparison separately.

Worked example 2: the 15% regime with three buckets (section 201)

Assumptions (tax year 2026-27): Anand Components Pvt Ltd was registered on 12 November 2019 and began production on 1 October 2022. It meets section 205(2) and has validly opted under section 201. Its total income, computed as section 201(3) requires, is Rs 2,00,00,000.

Bucket	Amount	Rate	Tax
Manufacturing business income	Rs 1,70,00,000	15%	Rs 25,50,000
Interest on surplus funds, unconnected with manufacturing, no specific rate elsewhere	Rs 20,00,000	22%	Rs 4,40,000
Short-term capital gain on sale of land (no depreciation allowable)	Rs 10,00,000	22%	Rs 2,20,000
Total	Rs 2,00,00,000		Rs 32,10,000

Check: 25,50,000 + 4,40,000 + 2,20,000 = 32,10,000. The interest bucket carries no deduction or allowance for expenditure against it, so the Rs 20,00,000 is taxed in full.

Worked example 3: related-party profits taxed at 30% (section 205(4))

Assumptions (tax year 2026-27): Verma Fabrics Pvt Ltd has opted under section 201 and sells most output to a closely connected buyer. Its business profit is Rs 60,00,000. The Assessing Officer finds that, because of the close connection, the arrangement produces more than the ordinary profits expected, and determines the reasonable profit at Rs 45,00,000.

1. Excess profit deemed to be income: 60,00,000 minus 45,00,000 = Rs 15,00,000.
2. Tax on the excess at 30%: Rs 4,50,000 (section 205(4)(b), section 201(1) Table Sl. No. 1.C(d)).
3. Tax on the remaining Rs 45,00,000 at 15% (assuming it is all manufacturing income): Rs 6,75,000.
4. Total tax: 4,50,000 + 6,75,000 = Rs 11,25,000.

If the arrangement is a specified domestic transaction under section 164, the profit from it is determined using the arm's length price in section 173(a).

Real-life example 1: Ravi's company that registered too early

Ravi's company, a manufacturer of steel furniture, was registered on 5 February 2016. He wants the 25% rate under section 199, but the company was not "set up and registered on or after 1 March 2016", so that option is closed. Section 200 does not carry a registration-date condition, so he can still evaluate the 22% rate by giving up the listed deductions.

Real-life example 2: Meena's company with a software side business

Meena registered her company on 20 January 2020 and started making LED lamps on 15 July 2022. In 2025 she added a small software development service. Software development is excluded from "manufacture or production" under section 205(5)(a)(i), and a company engaged in any other business fails section 205(2)(d). Her section 201 option becomes invalid for that year and later years under section 201(2)(d). Under section 200(7), she may then exercise the section 200 option at 22% because the invalidity arose from section 205(2)(d).

Real-life example 3: a start-up that began production after the cut-off

Imran incorporated his company on 3 March 2021 but his factory started production on 10 April 2024. Section 201 requires production to have started on or before 31 March 2024, so the 15% regime is not available. If he does not qualify under section 199, the section 200 option at 22% is the one to evaluate.

Common mistakes

• Missing the option date. The option must be exercised on or before the due date under section 263(1). A late option does not apply.
• Applying 15% to all income. Section 201 taxes non-manufacturing income and specified capital gains at 22%, and deemed income under section 205(4) at 30%.
• Carrying forward blocked losses. Losses and depreciation linked to the blocked deductions are treated as already absorbed. They cannot be claimed later (sections 199(2), 200(3), 201(4)).
• Mixing business lines. One non-manufacturing line, such as software development, can break the 15% regime and, under section 199, the 25% regime.
• Assuming the option can be reversed. Withdrawal is barred under sections 200(6) and 201(2)(c). Section 199(4) allows only a move from section 199 to section 200.
• Overlooking second-hand machinery. Previously used plant above 20% of the total value of plant used can invalidate the section 201 option (section 205(2)(b)).

Quick reference

Point	Section 199	Section 200	Section 201
Rate	25%	22%	15% / 22% / 30%
Registration date	On or after 1 Mar 2016	None	On or after 1 Oct 2019
Production start	No date	Not applicable	On or before 31 Mar 2024
Business scope	Manufacture or production only	Any	Manufacture or production
Option deadline	Due date for first return, s. 263(1)	Due date for return, s. 263(1)	Due date for first return, s. 263(1)
Withdrawal	Only by opting under s. 200	Not allowed	Not allowed
Depreciation cap (rule 25(2))	40% of WDV	40% of WDV	40% of WDV

Where this is in the Act

• Section 199: tax on income of certain manufacturing domestic companies (25%).
• Section 200: tax on income of certain domestic companies (22%).
• Section 201: tax on income of new manufacturing domestic companies (Table Sl. No. 1: 15%, 22%, 30%).
• Section 205: conditions, including the 205(1) list of blocked deductions, 205(2) conditions, 205(4) related-party profits and 205(5) definitions.
• Section 206(1)(q)(ii) and 206(3): MAT exclusion for optees and old MAT credit.
• Section 263(1): due date for the return of income, to which the option deadline is tied.
• Rule 25(2), Sl. No. 1: 40% depreciation cap for companies that exercised these options.

Losses and unabsorbed depreciation are explained in our guide on set-off and carry forward of losses.

For a CA firm, the hard part is tracking which company clients opted for which regime, the option deadline for each, and whether a mid-year change in business has put a 15% or 25% option at risk. Finexo's practice management software for CAs lets you keep a due-date and regime checklist per client so nothing is decided from memory. This article is general information based on the statute text, not tax advice.