Library / Income-tax Act, 2025: The Professional's Master Guide

58. Case Study 11: Company Regime Choice over Five Years

Facts. Tapi Industries Ltd. (normal regime, turnover below Rs. 400 crore) expects book profits of Rs. 10, 11, 12, 13 and 14 crore over Tax Years 2026-27 to 2030-31. It enjoys a profit-linked deduction of Rs. 6 crore a year for the first two years only, and claims additional depreciation of about Rs. 50 lakh a year. Under section 200 these would not be available, and taxable income would be roughly equal to book profit.

Year	Book profit (Rs. crore)	Normal tax (old)	MAT	Payable in old regime	Tax under section 200
1	10	97,37,000	1,55,79,200	1,55,79,200	2,51,68,000
2	11	1,25,19,000	1,79,37,920	1,79,37,920	2,76,84,800
3	12	3,34,88,000	1,95,68,640	3,34,88,000	3,02,01,600
4	13	3,64,00,000	2,11,99,360	3,64,00,000	3,27,18,400
5	14	3,93,12,000	2,28,30,080	3,93,12,000	3,52,35,200
Total				14,27,17,120	15,10,08,000

Reading the table. In years 1 and 2, the old regime (paying MAT) is cheaper than section 200 because of the large deduction. From year 3 onwards, once the deduction ends, section 200 is cheaper every year. The best path is to stay in the old regime for years 1 and 2 and switch to section 200 from year 3: total tax = 1,55,79,200 + 1,79,37,920 + 3,02,01,600 + 3,27,18,400 + 3,52,35,200 = Rs. 13,16,72,320, about Rs. 1.1 crore less than staying in the old regime throughout, and Rs. 1.9 crore less than switching now. Since MAT is a final tax from Tax Year 2026-27, the MAT paid in years 1 and 2 creates no credit, which is already reflected here.

Key point

The section 200 option can be exercised in any later year, but once exercised it cannot be withdrawn. A multi-year model like this is the only reliable way to choose the year of switch.