Choosing how a Private Limited Company is taxed is a real decision, not a default — the 22% concessional route can beat the normal rate, but only if the company forgoes certain deductions. Here are the rates for AY 2026-27, and one widely-repeated error to avoid about the 15% manufacturing rate.
| Quick answer | Key point |
|---|---|
| Normal company tax rate? | 25% if turnover is up to Rs. 400 crore, otherwise 30%, plus surcharge and cess. |
| What does Section 115BAA offer? | A 22% rate (effective 25.17%) if the company gives up specified deductions. |
| Can a new company get 15%? | No — Section 115BAB closed for manufacturing started after 31 March 2024. |
| Does MAT apply under 115BAA? | No — companies under 115BAA or 115BAB are exempt from MAT. |
| Dividends? | Taxed in the shareholder’s hands at their slab rate; no DDT. |
| Cess? | A 4% health and education cess on tax plus surcharge. |
How a Private Limited Company is taxed
A Private Limited Company is a domestic company taxed on its total income under the Income Tax Act, 1961, at either the normal slab-based corporate rate or a concessional rate under Section 115BAA or 115BAB.
For FY 2025-26 (AY 2026-27), the Income Tax Act, 1961 continues to apply; the new Income Tax Act, 2025 takes effect for AY 2027-28 onwards but carries the same rate structure. See /blog/income-tax-act-2025-explained.
- Section 115BAA: the 22% concessional regime for any domestic company that forgoes specified deductions.
- Section 115BAB: a 15% regime for new manufacturing companies — now closed to new entrants (see below).
- MAT: Minimum Alternate Tax of 15% of book profit, which applies only outside 115BAA/115BAB.
- Surcharge and cess: additional levies on the base tax — a 4% cess applies in every case.
Tax rates for AY 2026-27
| Regime | Base rate | Effective rate (with surcharge + cess) |
|---|---|---|
| Normal — turnover up to Rs. 400 crore | 25% | About 26% to 29.12% |
| Normal — turnover above Rs. 400 crore | 30% | About 31.2% to 34.94% |
| Section 115BAA (concessional) | 22% | About 25.17% |
| Section 115BAB (new manufacturing) | 15% | About 17.16% — see note |
The turnover test for the 25% normal rate in AY 2026-27 looks at the FY 2023-24 turnover (the prescribed prior year), not the current year. A 4% health and education cess applies on tax plus surcharge in all cases.
Section 115BAA: the 22% option
Any domestic company can opt into Section 115BAA and pay tax at 22% plus a flat 10% surcharge and 4% cess — an effective 25.17%. In exchange, it gives up most profit-linked deductions (such as Sections 80IA and 32AD), though Sections 80JJAA and 80M remain available.
The option is exercised by filing Form 10-IC before the return due date, is irrevocable, and removes MAT entirely.
Section 115BAB: why new companies cannot use it
Section 115BAB offered a 15% rate to new manufacturing companies incorporated on or after 1 October 2019 — but only if they commenced manufacturing on or before 31 March 2024.
That sunset date was not extended. A company incorporated today therefore cannot meet the commencement condition and cannot claim the 15% rate. New manufacturers now fall under Section 115BAA (22%) or the normal rates. Many online guides still list 115BAB as available — for a fresh company, it is not.
MAT, surcharge and dividends
- MAT: a Minimum Alternate Tax of 15% of book profit applies to companies on the normal regime, but not to those under Section 115BAA or 115BAB.
- Surcharge: 7% where income exceeds Rs. 1 crore and 12% above Rs. 10 crore on the normal regime; a flat 10% under Section 115BAA.
- Dividends: dividend distribution tax is abolished, so dividends are taxed in the shareholder’s hands at their applicable rate.
Common mistakes
- Assuming the 15% rate is open — a wrong tax projection. A new company uses 115BAA or normal rates, not 115BAB.
- Opting into 115BAA without checking deductions — lost deduction benefits permanently. Model both before filing Form 10-IC.
- Forgetting Form 10-IC — the 22% rate is denied. File it before the return due date.
How these provisions interact
Section 115BAA both lowers the rate to 22% and switches off MAT under Section 115JB, which is why a company with large book profits but few deductions often gains twice by opting in. Because the election is irrevocable, the decision interacts with future plans — a company expecting to claim heavy profit-linked deductions later may be better off staying on the normal regime.
Key takeaways
- Normal company tax is 25% (turnover up to Rs. 400 crore) or 30%, plus surcharge and 4% cess.
- Section 115BAA offers 22% (effective 25.17%) for companies that forgo specified deductions and removes MAT.
- Section 115BAB’s 15% rate is closed to companies that started manufacturing after 31 March 2024.
- MAT of 15% of book profit applies only outside the 115BAA/115BAB regimes.
- Dividends are taxed in shareholders’ hands; there is no dividend distribution tax.
Frequently asked questions
What is the tax rate for a Private Limited Company in AY 2026-27? 25% if turnover is up to Rs. 400 crore and 30% above that, plus surcharge and 4% cess. A 22% concessional rate is available under Section 115BAA.
What is the effective rate under Section 115BAA? About 25.17% — 22% base tax plus a flat 10% surcharge and 4% cess, with no MAT.
Can a new company get the 15% rate under 115BAB? No. Section 115BAB required manufacturing to commence by 31 March 2024, and that deadline was not extended, so a newly incorporated company cannot claim it.
Does MAT apply to a Private Limited Company? MAT of 15% of book profit applies on the normal regime, but companies that opt for Section 115BAA or 115BAB are exempt from it.
How is surcharge calculated? On the normal regime, 7% where income exceeds Rs. 1 crore and 12% above Rs. 10 crore; under Section 115BAA, a flat 10%.
How are dividends taxed now? Dividend distribution tax is abolished. Dividends are taxed in the shareholder’s hands at their applicable slab rate, with TDS where it applies.
How does a company opt into Section 115BAA? By filing Form 10-IC electronically before the income tax return due date. The choice is irrevocable for later years.
Which return does a company file? A Private Limited Company files ITR-6, and its accounts must be audited; the due date for audit cases is 31 October.
Get the regime decision right
The 22% versus normal-rate choice is irreversible, so it deserves a proper computation, not a default. Regikart’s tax team models both before filing. Reach us at +91 70444 94804 or [email protected], or see our accounting and tax services at /accounting-tax.
About the author
CA Deepak Jaiswal
FCA, Regikart at Regikart. Want to discuss this in the context of your business?
