Tax on income of certain manufacturing domestic companies
[Section-199 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 199(1) of Income Tax Act 2025
199(1) Irrespective of anything contained in this Act, but subject to the provisions of Parts A, B and this Part other than sections 200 and 201, the income-tax payable in respect of the total income of a person, being a domestic company, for any tax year, shall, at the option of such person, be computed at the rate of 25% subject to the following conditions:––
- 199(1)(a) the company has been set-up and registered on or after the 1st March, 2016;
- 199(1)(b) the company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it; and
- 199(1)(c) the total income of the company has been computed,—
- (i) without any deduction under––
- (A) sections 45(2)(c) and 47(1)(b);
- (B) Chapter VIII-C, other than the provisions of section 146; or
- (C) sections specified in section 205(1)(a) to (g);
- (ii) without set off of any loss carried forward from any earlier tax year, if such loss is attributable to any of the deductions referred to in sub-clause (i).
- (i) without any deduction under––
Section 199(2) of Income Tax Act 2025
199(2) The loss referred to in sub-section (1)(c)(ii) shall be deemed to have been given full effect to and no further deduction for such loss shall be allowed for any subsequent year.
Section 199(3) of Income Tax Act 2025
199(3) The provisions of this section shall not apply unless an option is exercised by the person in the manner as prescribed on or before the due date specified under section 263(1) for furnishing the first of the returns of income which such person is required to furnish and such option once exercised, shall apply to subsequent tax years.
Section 199(4) of Income Tax Act 2025
199(4) Once the option under sub-section (3) has been exercised for any tax year, it cannot be subsequently withdrawn for the same or any other tax year, except where the person exercises option under section 200.
FAQs on Section 199 of Income Tax Act 2025
What is the tax rate under Section 199(1) for certain domestic companies?
A domestic company can opt to be taxed at a flat rate of 25% on its total income, subject to specific conditions.
Who is eligible to opt for the 25% tax rate under Section 199?
A domestic company that:
(a) has been set up and registered on or after 1st March, 2016,
(b) is exclusively engaged in manufacturing or production and related research or distribution of such products, and
(c) computes income without certain deductions or set-offs, as specified.
What types of businesses are allowed under Section 199(1)(b)?
Only businesses engaged in manufacturing or production of any article or thing and research or distribution related to the same are permitted.
What deductions are not allowed under Section 199(1)(c)(i)?
The following deductions are not permitted:
(A) Deductions under sections 45(2)(c) and 47(1)(b),
(B) Deductions under Chapter VIII-C, except section 146,
(C) Deductions under section 205(1)(a) to (g).
Can a company carry forward and set off losses under Section 199?
No, a company cannot set off losses carried forward from earlier years if they are attributable to deductions disallowed under Section 199(1)(c)(i).
What happens to disallowed carried forward losses under Section 199(2)?
Such losses are deemed to have been fully set off and no deduction shall be allowed for them in any future year.
How and when should the option be exercised under Section 199(3)?
The company must exercise the option in the prescribed manner on or before the due date for filing its first return of income under Section 263(1).
Is the option once exercised under Section 199 irrevocable?
Yes, once exercised, the option is irrevocable for all tax years, unless the company opts under Section 200.
Can a company switch back from Section 199 to any other tax regime?
No, unless it opts under Section 200, the company cannot withdraw from Section 199 once the option is exercised.
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