CBDT Introduces Changes for Assesses Opting for Concessional Tax Rates Under New Tax Regime
Companies, individuals, HUFs, and cooperative societies opting for concessional tax rates under Sections 115BAA, 115BAB, 115BAC, and 115BAD of the Income Tax Act, 1961 (read with Section 295) must satisfy specific reporting obligations across their Income Tax Return (“ITR”), Tax Audit Report (“Form 3CD”), and, where applicable, Transfer Pricing Report (“Form 3CEB”). These requirements were introduced by CBDT Notification No. 82/2020 and remain the operative compliance framework today, with one material change: the new tax regime under Section 115BAC is now the default regime, not an opt-in election, for individuals and HUFs from AY 2024-25 onward. This guide sets out what must be reported, where, and how the position changes as the Income Tax Act 2025 comes into effect.
1. What Changed for Assessees Opting for Concessional Tax Rates
Sections 115BAA and 115BAB allow domestic companies to opt for reduced corporate tax rates (22% and 15%, respectively, subject to conditions) in exchange for foregoing specified deductions and exemptions. Section 115BAD extends a similar concessional structure to resident co-operative societies. Section 115BAC, originally an optional regime for individuals and HUFs, has been the default tax regime since AY 2024-25. This is a reversal of the original framing: taxpayers no longer elect into the concessional regime by default; they must actively elect out of it if the old regime suits them better. That opt-out mechanism, and its reporting consequences, are addressed in Section 4 below.
Across all four sections, opting for the concessional rate carries a common consequence that must be correctly reflected in your accounts and compliance filings: certain deductions, most significantly additional depreciation and brought-forward losses attributable to it, are disallowed, and the resulting adjustments must be reported accurately to avoid mismatches during assessment.
2. Depreciation and Unabsorbed Additional Depreciation Adjustments
a) Maximum depreciation on any block of assets is capped at 40% under Rule 5 read with Appendix I of the Income Tax Rules, 1962, for assessees opting into a concessional regime.
b) Unabsorbed additional depreciation under Section 32(1)(iia) is not allowed under the concessional regime and must instead be added back to the opening written-down value (WDV) of the relevant block of assets. Getting this adjustment wrong is one of the most common assessment-triggering errors for first-year electors, since it affects both the current year’s depreciation claim and the closing WDV carried forward.
3. Reporting Requirements in Form 3CD (Tax Audit Report)
Form 3CD requires specific disclosures from assessees reporting a concessional-regime election, structured as follows:
a) Clause 8a requires the assessee to state whether they have opted for the new/concessional tax regime for the relevant assessment year.
b) Sub-clauses 18(ca) and 18(cb), under the “Fixed Assets” head, require reporting of the adjustment made to opening WDV on account of unabsorbed additional depreciation under Section 115BAA and the resulting adjusted WDV.
c) Clause 32(a) requires details of brought-forward losses and unabsorbed additional depreciation for companies opting for the concessional rate under Section 115BAA, to the extent available and subject to any pending appeal on assessed depreciation.
Auditors should treat these as a discrete review checkpoint during tax audit planning. An incorrect or omitted Clause 8a disclosure is a common trigger for scrutiny, independent of whether the underlying tax computation is correct.
For reporting requirements under a different Form 3CD clause, Clause 44, covering GST expenditure reconciliation, see our guide to Clause 44 reporting challenges, which is not covered here.
4. Reporting in the ITR and Election/Opt-Out Forms (10-IC, 10-IF, 10-IEA)
The election itself, as distinct from the Form 3CD disclosure of its downstream effects, is made through a dedicated form, and which form applies depends on the assessee type and the current default status of the regime:
a) Form 10-IC is filed by a domestic company electing for the concessional rate under Section 115BAA.
b) Form 10-IF is filed by a resident cooperative society electing for the concessional rate under Section 115BAD.
c) Form 10-IEA is the operative form for individuals and HUFs today. Because Section 115BAC is now the default regime, Form 10-IEA is used to elect out of it the inverse of its original purpose when the regime was optional. A taxpayer with business or professional income who opts out and later wants to return to the new regime may generally do so only once in their lifetime; a taxpayer without business income may switch between regimes each year. This distinction should be confirmed with the client before filing, since it affects future-year flexibility.
The corresponding ITR form for the relevant assessment year requires similar reporting of adjustments related to unabsorbed additional depreciation and brought-forward losses that are not allowed under the concessional regime, consistent with the Form 3CD disclosures above.
5. Form 3CEB Requirements for Section 115BAB Manufacturing Companies
Part C of Form 3CEB requires new manufacturing domestic companies opting for the concessional rate under Section 115BAB to report specified domestic transactions, including whether each transaction was carried out at arm’s length. This is a narrow but easily missed obligation: it applies specifically to 115BAB electors with specified domestic transactions, not to all concessional-rate electors generally, and is frequently overlooked because it sits within the transfer pricing report rather than the tax audit report.
For broader transfer pricing filing deadline planning, see our guide to transfer pricing filing deadlines.
6. What Changes Under the Income Tax Act 2025 Transition
The Income Tax Act 2025 restructures the 1961 Act, and Section 115BAC is being renumbered to Section 202, effective from a notified date currently set at 1 April 2026. The tax slabs, rates, and underlying mechanics carried in Section 115BAC are preserved under Section 202. This is a renumbering exercise as part of the broader simplification of the Act, not a substantive change to the concessional regime itself. The concessional provisions for companies (115BAA/115BAB) and co-operative societies (115BAD) have corresponding entries in the same CBDT concordance table and should be checked against it directly.
Until the notified transition date, the 1961 Act provisions and the reporting obligations described above continue to apply without change. For the full legislative context behind the Income Tax Act 2025, including the shift to a unified “Tax Year” concept and the broader restructuring rationale, see our guide to the Income-tax Act 2025 transition.
7. Compliance Checklist for FY-End Reporting
- Confirm which section (115BAA / 115BAB / 115BAC / 115BAD) applies to the assessee and confirm the election is validly in force for the relevant year
- Verify the correct election/opt-out form has been filed (10-IC, 10-IF, or 10-IEA) and retained on file
- Recompute opening WDV to reflect the addback of unabsorbed additional depreciation under Section 32(1)(iia)
- Confirm Form 3CD Clause 8a, and sub-clauses 18(ca)/18(cb) and 32(a), are completed consistently with the recomputed WDV
- For 115BAB electors: confirm whether Form 3CEB Part C reporting is triggered by specified domestic transactions in the year
- Cross-check ITR disclosures against the Form 3CD figures before filing
Article contributed by:
Manager – Direct Tax
MBG Corporate Services
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