Income Tax 2025

Appearance

Tax on income of certain domestic companies ​

200(1) ​

Irrespective of anything contained in this Act but subject to the provisions of Parts A, B and this Part, other than sections 199 and 201, 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 the total income of such person computed in the following manner:––

  • (a) without any deduction under–– (i) sections 45(2)(c) and 47(1)(b); or (ii) Chapter VIII other than the provisions of section 146; or (iii) sections specified in section 205(1)(a) to (g);
  • (b) without set off of any loss carried forward or depreciation from any earlier tax year, if such loss or depreciation is attributable to any of the deductions referred to in clause (a);
  • (c) without set off of any loss or allowance for unabsorbed depreciation deemed so under section 116(1), if such loss or depreciation is attributable to any of the deductions referred to in clause (a).

200(2) ​

Where the person fails to satisfy the requirements contained in sub-section (1) in any tax year, the option shall become invalid in respect of the said tax year and subsequent years and other provisions of the Act shall apply, as if the option had not been exercised for such tax year and for subsequent years.

200(3) ​

The loss and depreciation referred to in sub-section (1)(b) and (c) shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year.

200(4) ​

In case of a person, having a Unit in the International Financial Services Centre, which has exercised option under sub-section (5), the requirements contained in sub-section (1) shall be modified to the extent that the deduction under the said section shall be available to such Unit subject to fulfilment of the conditions contained in that section.

200(5) ​

The provisions of this section shall not apply unless the option is exercised by the person in the such manner as prescribed on or before the due date specified under section 263(1) for furnishing the return of income and such option once exercised, shall apply to subsequent tax years.

200(6) ​

Once the option under this section has been exercised for any tax year, it shall not be subsequently withdrawn for the same or any other tax year.

200(7) ​

In case of a person, being a domestic company, where the option exercised by it under section 201, has been rendered invalid due to violation of the conditions contained in section 205(2)(b) or (c) or (d), such person may exercise the option under this section. SS

Explanation

Section Summary: ​

This section introduces a special tax rate of 22% for certain domestic companies, provided they meet specific conditions. It allows these companies to opt for a lower tax rate but restricts them from claiming certain deductions, carrying forward losses, or using unabsorbed depreciation. The option, once exercised, is irrevocable and applies to subsequent tax years unless the company fails to meet the conditions.

Key Changes: ​

  1. New Tax Rate Option: Domestic companies can now opt for a 22% tax rate, a significant reduction compared to the standard corporate tax rate.
  2. Restrictions on Deductions: Companies opting for this rate cannot claim certain deductions (e.g., under sections 45(2)(c), 47(1)(b), or Chapter VIII, except section 146).
  3. No Carry Forward of Losses or Depreciation: Losses or depreciation attributable to restricted deductions cannot be carried forward or set off.
  4. Irrevocable Option: Once the option is exercised, it cannot be withdrawn in subsequent years.
  5. Special Provisions for IFSC Units: Companies with units in International Financial Services Centres (IFSCs) have modified conditions for deductions.

Practical Implications: ​

  1. For Domestic Companies:
    • Companies with lower deductions or losses may benefit from the reduced tax rate.
    • Companies relying heavily on deductions or carry-forward losses may find this option less attractive.
  2. For IFSC Units:
    • IFSC-based units can avail deductions under modified conditions, making the option more beneficial for them.
  3. Compliance Burden:
    • Companies must carefully evaluate whether the 22% rate is advantageous, considering the restrictions on deductions and loss carry-forwards.
    • Once the option is exercised, it is binding for future years, so companies must plan strategically.

Critical Concepts: ​

  1. Domestic Company: A company registered under the Companies Act, 2013, or earlier laws, and whose control and management are wholly situated in India.
  2. Unabsorbed Depreciation: Depreciation that could not be fully set off against income in previous years and is carried forward to future years.
  3. IFSC Units: Units located in International Financial Services Centres, which enjoy certain tax benefits and exemptions.
  4. Interaction with Other Laws:
    • This section overrides general provisions of the Income Tax Act but remains subject to Parts A, B, and this Part (except sections 199 and 201).
    • If a company violates conditions under section 205(2)(b), (c), or (d), it can still opt for this section.

Compliance Steps: ​

  1. Evaluate Eligibility:
    • Assess whether the 22% tax rate is beneficial, considering the restrictions on deductions and loss carry-forwards.
  2. Exercise Option:
    • File the option in the prescribed manner before the due date for furnishing the income tax return (as per section 263(1)).
  3. Maintain Records:
    • Ensure compliance with the conditions of this section to avoid invalidation of the option.
  4. No Withdrawal:
    • Once the option is exercised, it cannot be withdrawn, so ensure it aligns with long-term tax planning.

Examples: ​

  1. Scenario 1: A domestic company with minimal deductions and no carry-forward losses opts for the 22% tax rate. It benefits from the lower rate and does not face significant disadvantages due to the restrictions.
  2. Scenario 2: A company with substantial carry-forward losses from previous years decides not to opt for the 22% rate, as it would lose the ability to set off these losses against future income.
  3. Scenario 3: An IFSC-based unit opts for the 22% rate and avails modified deductions, making the option more advantageous compared to a regular domestic company.

This section provides a strategic tax planning tool for domestic companies, but careful evaluation is required to determine its suitability based on individual financial circumstances.