80-IAC vs 115BAA vs 115BAB: Which Tax Route Should Your Startup Actually Pick?

Three numbers get thrown at every founder I sit with. Zero tax under 80-IAC. Twenty-two percent under 115BAA. Fifteen percent under 115BAB. They sound like three flavours of the same benefit, and that is exactly where the trouble starts. One of them is a deduction on profits. Two are tax-rate regimes. One of the three is no longer open to a company starting today. And you cannot stack them.

So this is not a contest with one winner. It is a matching exercise between a tax route and the shape of your profits — when they arrive, how big they are, and what your company actually does. Get the match wrong and the mistake is expensive, because one of these choices can never be taken back.

Stop treating them as three versions of one benefit

Section 80-IAC gives an eligible startup a deduction of 100% of the profits of its eligible business for three consecutive years, chosen from its first ten years. It does not change your tax rate. It wipes out the tax on those three years' profits, and in the other years you pay tax the normal way.

Sections 115BAA and 115BAB do the opposite. They change the rate itself — 22% and 15% respectively — and they apply year after year, not for a chosen window of three. In exchange, your total income is computed without a list of deductions and incentives the sections name. There is no picking the holiday in good years and the low rate in the rest. The 115BAA computation shuts the door on Chapter VI-A deductions, and the 80-IAC deduction sits in Chapter VI-A. Choosing the rate regime means giving up the holiday. Permanently, as you will see.

One housekeeping note before we go further. For tax years from 2026-27, these provisions live in the Income-tax Act, 2025 — the holiday is now section 140, the 22% regime is section 200 and the 15% regime is section 201. The substance founders argue about has not changed; only the section numbers have. I use the old numbers in this article because those are the ones on your term sheets, your old board notes and the returns for earlier years.

80-IAC: a holiday that only pays if profits show up inside the window

The holiday is the most valuable of the three on paper and the most commonly wasted in practice. A deduction of 100% of profits is worth nothing in a year when there are no profits. Most startups lose money in their early years, which is precisely why the section lets you pick any three consecutive years out of the first ten. Wait for real profits. Then claim.

It works like a strip of three free-month coupons for a gym, valid in any three consecutive months of the first ten years — hand them over in months when you never train and they are simply gone. The coupons are generous. The timing is on you.

Eligibility is narrow, and recognition alone does not get you there. Your company or LLP must be incorporated on or after 1 April 2016 and before 1 April 2030. It must hold DPIIT recognition. And it must hold a certificate of eligible business from the Inter-Ministerial Board — a separate approval, applied for separately, which many founders discover far too late. Turnover must stay within the ceiling for the claim year: ₹100 crore for years governed by the 1961 Act. From tax year 2026-27, section 140 of the 2025 Act raises that ceiling to ₹300 crore. Do not mix this up with the DPIIT recognition ceiling, which is a different test altogether — ₹200 crore under the February 2026 notification. Three ceilings, three different jobs.

Two more things founders miss. The holiday leaves you in the normal regime, so minimum alternate tax on book profits can still be payable in a holiday year — the deduction cuts your normal tax, not your book profit. And the mechanics matter: the IMB application, the audit report, the claim in the return. I have covered all of that in our full guide to the Section 80-IAC tax holiday, so I will not repeat it here. This article is about the choice, not the paperwork.

115BAA: the plain 22% deal, and the door it closes behind you

Section 115BAA is open to any domestic company. The rate is 22%, and because the surcharge is a flat 10% with 4% cess on top, the effective rate is 25.168% whatever your size. In return, the company gives up a specified set of reliefs — the SEZ deduction under section 10AA, additional depreciation, investment-linked deductions and most Chapter VI-A deductions, the 80-IAC holiday among them. Brought-forward losses that came from those deductions are treated as already absorbed. Minimum alternate tax does not apply once you are in, which is a genuine relief for companies whose book profits run ahead of taxable profits.

The option is exercised in Form 10-IC, on or before the due date under section 139(1) for the year you opt in. You may opt in any year — there is no compulsion to decide at incorporation. But read the small print twice: once exercised, the option applies to that year and every later year, and it cannot be withdrawn. Ever. A startup that opts into 115BAA in a profitable year has, in the same stroke, surrendered its 80-IAC holiday for good. I have seen that trade made casually, in a hurry, in October. It cannot be unmade in November.

Where does that leave the comparison with the normal regime? A smaller domestic company in the normal regime pays a base rate of 25%, a larger one 30%, but keeps its deductions and its MAT credit. If your company claims little by way of incentives and has no MAT credit banked, 25.168% all-in, with no MAT hanging over book profits, is usually the cleaner number. If you carry heavy deductions or a stock of MAT credit, run both computations before anyone talks of opting. The section rewards companies whose profits are simple.

115BAB: the 15% rate, honestly assessed — the door has closed

Now the part most articles still get wrong, because old content never dies. Section 115BAB offered 15% — 17.16% effective — to new manufacturing companies. Two dates controlled it. The company had to be set up and registered on or after 1 October 2019. And it had to commence manufacturing or production on or before 31 March 2024. That commencement deadline was extended once, from 31 March 2023 to 31 March 2024. It has not been extended again. The Finance Act, 2026 did not reopen it, and under the 2025 Act the successor provision, section 201, carries the same 31 March 2024 date.

So let me say this plainly. If your company starts production now, 115BAB is not available to you. Not with a good consultant. Not with a clever structure. Any pitch built on getting a company incorporated today into the 15% regime is built on a date that has passed.

Companies that did start production in time keep the rate, and for them the conditions still bite every year: the company must not be formed by splitting up or reconstructing an existing business; previously used plant and machinery is tightly capped, with narrow exceptions; and some activities simply do not count as manufacture — developing computer software, mining, converting marble blocks into slabs, bottling gas into cylinders, printing books and producing cinematograph films are on that list, while generation of electricity counts as manufacture. The option was exercised in Form 10-ID by the return due date for the first year, it cannot be withdrawn, and if the conditions fail in any year, the option fails for that year and every year after. If your company is inside this regime, guard the conditions like licences. If it is outside, your real choice is the one in the next section.

Which route fits your company? Three honest answers

You are a DPIIT startup, still loss-making or just breaking even. Do nothing in a hurry. A rate cut saves tax on profits you do not yet have, and opting into 115BAA today burns the holiday you may want in years five, six and seven. Get the IMB certificate in place before you need it, watch the ten-year clock, and let the choice wait until your profit years are visible. Patience is the strategy here.

You run a profitable services or product company. Your contest is 115BAA at 25.168% against your normal-regime computation — not against 15%, which was never on your table. Price both, honestly, including the deductions you would surrender and any MAT credit you would strand. If the 80-IAC holiday is still live for you and your best profit years are ahead, that holiday can beat the rate cut across those three years; after it is spent, 115BAA remains open to you, because you can opt into it in a later year. Sequence matters more than the headline rate.

You are setting up manufacturing now. Accept that 15% is gone and plan on real numbers: 115BAA at 25.168%, or the normal regime if your incentive claims and depreciation profile make it cheaper in the early years. If your plant genuinely commenced production on or before 31 March 2024 and the other conditions hold, protect that 115BAB position — it is now a scarce asset on your balance sheet, and sloppy restructuring can cost you it.

Notice what none of these answers does. None of them names a universal winner. The right route depends on when your profits arrive and what you would have to give up to claim it — which is why the honest version of this decision is a computation, not a slogan. If you want that computation done against your own numbers, and the timing mapped against your ten-year window, our DPIIT recognition benefits page walks through how we work on exactly this choice — bring your projections, and we will run both sides before you sign anything irrevocable.