Section 200: optional 22% tax rate for domestic companies

Introduction

A domestic company may elect this 22% computation for a tax year if it meets the conditions in Section 200. The computation gives up listed deductions and losses or depreciation attributable to them, so the statutory rate alone does not establish which option is better for the company.

The option must be exercised in the prescribed manner by the return due date under Section 263(1). Once exercised, it continues for later tax years and cannot be withdrawn; a later failure of the conditions makes it invalid from that year onward.

Key takeaways

Base rate and current SPV surcharge are separate

The 22% figure in Section 200 is the income-tax base rate, subject to the section’s other applicable provisions. The Taxation and Other Laws (Amendment) Act, 2026 separately amended the Finance Act, 2026 surcharge tables with deemed effect from 1 April 2026.

For income-tax under Section 200 or 201, those amended tables prescribe a 25% surcharge for a domestic company that is a special purpose vehicle referred to in Schedule V, Note 2; the corresponding rate for other domestic companies is 10%. These are percentages of income-tax, not additions of 25 or 10 percentage points to the base income-tax rate.

Confirm the company’s statutory SPV status and compute surcharge and any applicable cess separately. A comparison based only on the 22% headline rate is incomplete.

The option and how income is computed

A domestic company may opt, subject to Parts A, B and E of this Chapter and this Part (other than sections 199 and 201), to be taxed at a flat 22% on total income computed:

• Without deduction under section 45(2) or 47(1)(b);
• Without deduction under Chapter VIII (other than sections 146 or 148);
• Without deduction under the sections listed in section 205(1)(a) to (g);
• Without set-off of any loss carried forward or depreciation from an earlier tax year attributable to those disallowed deductions; and
• Without set-off of any loss or unabsorbed depreciation deemed so under section 116, if attributable to those disallowed deductions.

If the conditions are not met

If the company fails to satisfy these requirements in any tax year, the option becomes invalid for that tax year and all subsequent years, and the rest of the Act applies as if the option had never been exercised for those years.

Any loss or depreciation that cannot be set off because it is attributable to a disallowed deduction is deemed to have been given full effect to, so no further deduction is allowed for it in any later year.

IFSC units and exercising the option

For a company having a Unit in an International Financial Services Centre that has exercised the option under sub-section (5), the requirement above is modified so that the deduction under section 147 remains available to that Unit, subject to that section's conditions.

The option must be exercised in the prescribed manner on or before the due date under section 263(1) for furnishing the return of income; once exercised, it applies to subsequent tax years and cannot subsequently be withdrawn for that year or any other year.

A company whose option under section 201 has become invalid because of a violation of the conditions in section 205(2)(b), (c) or (d) may instead exercise the option under this section.

Official August 2026 amendment

• Taxation and Other Laws (Amendment) Act, 2026 — enacted Act 21 of 2026
• Income-tax Act, 2025 — Finance Act, 2026 consolidation (read with the August amendment)

Step-by-step flow for applying Section 200

1. 1

   Is the person a domestic company?

   • No: Section 200 is not available.
   • Yes: Go to the next step.
2. 2

   Will total income be computed without the excluded deductions?

   No deduction under Section 45(2) or 47(1)(b), Chapter VIII other than Section 146 or 148, or the sections in Section 205(1)(a) to (g); no set-off of brought-forward loss or depreciation, or loss or unabsorbed depreciation deemed under Section 116, attributable to those deductions. An IFSC Unit may still claim Section 147 (Section 200(4)).

3. 3

   Has the option been exercised in the prescribed manner by the due date under Section 263(1) for furnishing the return?

   • No: The 22% rate does not apply (Section 200(5)).
   • Yes: Go to the next step.
4. 4

   Compute tax at 22% on that total income

   The excluded losses and depreciation are deemed to have been given full effect and cannot be claimed later (Section 200(3)).

5. 5

   In later years, does the company still meet the Section 200(1) requirements?

   • No: The option becomes invalid for that tax year and all later years; the other provisions of the Act apply (Section 200(2)).
   • Yes: The option continues; it cannot be withdrawn (Section 200(6)).

Practical checklist

Glossary

Excluded deductions

Deductions that cannot be claimed if the 22% option is used: Section 45(2) or 47(1)(b), Chapter VIII other than Sections 146 and 148, and the sections listed in Section 205(1)(a) to (g).

Deemed full effect

Losses or depreciation that could not be set off because they relate to excluded deductions are treated as fully used and cannot be claimed in any later year (Section 200(3)).

Unit (IFSC)

A unit in an International Financial Services Centre, which may still claim the Section 147 deduction while using this option (Section 200(4)).

Frequently asked questions