LTCG is Taxed at 22% for Companies Opting for Section 115BAA, Not 20%.

By | November 3, 2025
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LTCG is Taxed at 22% for Companies Opting for Section 115BAA, Not 20%.

Issue

Whether a domestic company that has opted for the concessional tax regime under Section 115BAA is liable to pay tax on its Long-Term Capital Gains (LTCG) at the special rate of 20% under Section 112, or at the flat rate of 22% which Section 115BAA applies to its “total income.”

Facts

  • The assessee, a domestic company, filed its income tax return for the Assessment Year 2021-22.
  • The company had voluntarily opted to be taxed under the special, concessional regime of Section 115BAA, which provides for a flat tax rate of 22% (plus applicable surcharge and cess).
  • During the year, the assessee also earned Long-Term Capital Gains (LTCG).
  • A dispute arose over the correct tax rate applicable to this LTCG. The assessee likely contended for the 20% rate under Section 112, while the Revenue argued for the 22% rate under Section 115BAA.

Decision

  • The court ruled in favour of the Revenue.
  • It held that once an assessee opts for taxation under Section 115BAA, that section governs the tax rate for the “total income” of the company.
  • “Total income” includes all heads of income, including Long-Term Capital Gains.
  • Therefore, the rate of tax applicable to the LTCG component is 22% as per Section 115BAA. The general provision of Section 112, which prescribes a 20% rate, is not applicable in this specific scenario.

Key Takeaways

  • 115BAA is a Package Deal: Section 115BAA is a special, optional regime. When a company opts in, it agrees to a flat 22% tax rate on its entire total income in exchange for forgoing specified deductions and exemptions.
  • Special Provision Overrides General: The specific provision of Section 115BAA (which dictates the rate for total income once opted) overrides the general provision of Section 112 (which dictates the rate for a specific component of income).
  • No “Rate Shopping”: A company cannot “cherry-pick” tax rates—for example, by applying the 22% rate for its business income and the lower 20% rate for its capital gains. The 22% rate is a flat and final rate for all components of its total income.
  • Higher Tax on LTCG: This ruling confirms that a company opting for the 115BAA regime will pay a slightly higher tax on its long-term capital gains (22% instead of the 20% specified in Section 112).
IN THE ITAT DELHI BENCH ‘SMC’
Maharishi Education Corporation P. Ltd.
v.
Income-tax Officer
Vikas Awasthy, Judicial Member
IT Appeal No. 2639 (DELHI) of 2025
[Assessment year 2021-22]
OCTOBER  24, 2025
Deepak Jain, Chartered Accountant for the Appellant. Ms. Sudha Gupta, Sr. DR for the Respondent.
ORDER
Vikas Awasthy, Judicial Member. – This appeal by the assessee is directed against the order of Additional/Joint Commissioner of Income Tax (Appeals)-1, Nashik [in short ‘the CIT(A)’] dated 07.03.2025, for Assessment Year 2021-22.
2. The solitary issue raised by the assessee in appeal is rate of tax applied by the Assessing Officer (AO) u/s. 115BAA of the Income Tax Act,1961(hereinafter referred to as ‘the Act’). As per the assessee, the rate of tax applicable is 20% as prescribed u/s. 112 of the Act, whereas, the AO has held that the tax on Long Term Capital Gain as per section 115BAA of the Act is @22%.
3. The assessee is a domestic company. The assessee exercised an option u/s. 115BAA of the Act by filing Form 10IC for Financial Year 2019-20 and subsequent years. The assessee filed its return of income for the impugned assessment year declaring income of Rs.14,98,150/- consisting of loss of Rs.20,263/- and Long Term Capital Gain of Rs.15,18,414/- on sale of land. The assessee calculated tax @20% as per the provisions of section 112 of the Act and paid the tax accordingly. The return of the assessee was processed u/s. 143(1)of the Act on 30.12.2023 and an additional demand of Rs.59,973/- was raised after re-computation of tax @22% on the returned income. The assessee filed appeal before the CIT(A) assailing rate of tax @22%. The short contention of the assessee is that on Long Term Capital Gain, the rate of tax should be 20% as provided u/s. 112 of the Act.
4. Both sides heard. The solitary dispute in the instant appeal is the rate of tax applicable. According to the Revenue, since, the assessee has opted for taxation u/s. 115BAA of the Act, the rate of tax applicable for the impugned assessment year is 22%. Whereas, according to the assessee the rate of tax applicable on Long Term Capital Gain should be 20%. Admittedly, the assessee has opted for taxation u/s. 115BAA of the Act, hence, the rate of tax applicable in respect of total income of the assessee company is 22%. Hence, I find no reason to interfere with order of the CIT(A). Consequently, the same is upheld.
5. In the result, appeal of the assessee is dismissed.