TL;DR: Corporate Tax Rates Key Takeaways
Short on time? Here are the critical facts regarding the Indian corporate tax landscape:
- Domestic Old Regime: Base tax is 25% (for turnover up to ₹400 Cr) or 30% (for turnover above ₹400 Cr). Subject to fluctuating surcharges and MAT.
- Section 115BAA (The Popular Choice): A flat base rate of 22% (Effective rate: 25.17%) for any domestic company. Requires giving up most deductions. No MAT.
- Section 115BAB (For Manufacturers): A massive incentive base rate of 15% (Effective rate: 17.16%) for newly incorporated domestic manufacturing companies. Strict setup conditions apply. No MAT.
- Foreign Companies: Base tax rate of 35%. Effective rate peaks at 38.22% depending on surcharge thresholds.
- Compliance is Key: Corporate advance taxes must be paid in 4 quarterly installments (June, Sept, Dec, March). The final ITR-6 returns are due by October 31st.
Introduction
India is currently positioned as one of the fastest-growing major economies in the world. With rapid digital transformation, a massive consumer base, and proactive government policies designed to attract global supply chains, the country has become a prime destination for both domestic entrepreneurship and foreign direct investment. However, navigating the financial and regulatory landscape of such a vast economy requires a deep understanding of its statutory frameworks.
At the very heart of this financial landscape is the corporate tax structure. Today’s entrepreneurial ecosystem is incredibly diverse. Whether you are a veteran industrialist expanding a legacy conglomerate, a foreign entity establishing a new subsidiary, or a woman founding her first deep-tech startup in Bengaluru, understanding your exact corporate tax liabilities is non-negotiable. It dictates your cash flow, your reinvestment capabilities, and ultimately, your bottom line.
This comprehensive guide breaks down the corporate tax rates in India for the Financial Year 2025-26 (Assessment Year 2026-27). We will explore the traditional tax regime, the highly beneficial concessional tax rates, the specific structures for foreign companies, and the compliance deadlines you cannot afford to miss.
1. How is Corporate Tax Calculated in India?
Before diving into the specifics, it is crucial to understand how corporate tax is actually calculated in India. The final amount a company pays to the Income Tax Department is rarely just the “base rate.” It is a composite figure made up of three distinct elements:
- Base Tax Rate: This is the primary percentage levied on a company’s net taxable income (which is total revenue minus allowable business expenses and deductions). The base rate varies depending on the type of company (domestic vs. foreign), its annual turnover, and the specific tax regime it chooses to adopt.
- Surcharge: Think of a surcharge as a “tax on tax.” It is an additional percentage levied on the base tax amount, but it only applies if the company’s net income crosses certain high-value thresholds (typically ₹1 crore and ₹10 crore). The surcharge is designed to ensure that highly profitable entities contribute proportionately more to the national exchequer.
- Health and Education Cess: Once the base tax and the surcharge (if applicable) are calculated and added together, a mandatory 4% Health and Education Cess is applied to that total figure. This cess is levied on every single corporate taxpayer, regardless of their income size, to fund government healthcare and education initiatives.
When you combine the Base Rate, the Surcharge, and the Cess, you arrive at the Effective Tax Rate. This is the actual, final percentage of your profit that will be paid as tax.
2. Corporate Tax Rates for Domestic Companies: The Old Regime
A domestic company is an entity registered under the Companies Act of India, or a foreign-owned entity whose core management and control are situated entirely within India.
For domestic companies that choose to stick with the traditional, older tax regime the base corporate tax rate is determined by the company’s gross turnover from previous financial years. The regime allows them to claim various industry-specific deductions, depreciation benefits, and tax holidays
Companies with a Turnover up to ₹400 Crore
The government provides a lower base tax rate of 25% for companies whose gross turnover did not exceed ₹400 crore in the specified preceding financial year. This is to support Micro, Small, and Medium Enterprises (MSMEs) and mid-sized businesses
Companies with a Turnover exceeding ₹400 Crore
Large-scale domestic corporations that generate a gross annual turnover of more than ₹400 crore are subject to a higher standard base tax rate of 30%.
The Old Regime Effective Tax Rates (Including Surcharge & Cess)
Here is exactly how the math breaks down. This is for domestic companies operating under the standard, old tax regime based on their net taxable income:
| Net Taxable Income | Turnover ≤ ₹400 Crore (Base 25%) | Turnover > ₹400 Crore (Base 30%) |
| Up to ₹1 Crore | Base: 25% Surcharge: Nil Cess: 4% Effective Rate: 26.00% | Base: 30% Surcharge: Nil Cess: 4% Effective Rate: 31.20% |
| ₹1 Crore to ₹10 Crore | Base: 25% Surcharge: 7% Cess: 4% Effective Rate: 27.82% | Base: 30% Surcharge: 7% Cess: 4% Effective Rate: 33.38% |
| Above ₹10 Crore | Base: 25% Surcharge: 12% Cess: 4% Effective Rate: 29.12% | Base: 30% Surcharge: 12% Cess: 4% Effective Rate: 34.94% |
(Note: Companies under this regime are also subject to Minimum Alternate Tax provisions, which we will cover in Section 5).
3. The New Concessional Tax Regimes: Section 115BAA and Section 115BAB
In a bold move to make India a globally competitive investment destination and simplify the tax code, the government introduced the Taxation Laws (Amendment) Act, 2019. This brought two entirely new sections into the Income Tax Act: Section 115BAA and Section 115BAB.
These sections offer drastically reduced corporate tax rates. However, they come with a major condition. To get these low rates, a company must voluntarily surrender almost all targeted tax exemptions, investment-linked deductions, and tax holidays.
Section 115BAA: The 22% Rate for Existing & New Companies
Under Section 115BAA, any domestic company can opt to pay a base corporate tax rate of just 22%. This is regardless of its turnover size.
Unlike the old regime where the surcharge slides up and down based on your income, Section 115BAA applies a flat 10% surcharge no matter how high or low your profits are. When you add the mandatory 4% cess, the Effective Tax Rate becomes a flat 25.17%.
Key Conditions for Section 115BAA:
- Loss of Deductions: The company cannot claim deductions under sections like 10AA (Special Economic Zones), 32(1)(iia) (additional depreciation), 35AD (investment-linked deductions), and various Chapter VI-A deductions (except Section 80JJAA for new employment generation and 80M for inter-corporate dividends).
- Irrevocable Choice: Once a company opts into Section 115BAA by filing Form 10-IC before the due date of their tax return, they cannot switch back to the old regime in subsequent years. It is a one-way street.
- MAT Exemption: A massive benefit of this section is that companies are entirely exempt from paying Minimum Alternate Tax (MAT). However, any accumulated MAT credit from previous years will be lost.
Section 115BAB: The 15% Rate for New Manufacturing Companies
To aggressively boost the “Make in India” initiative and establish India as a global manufacturing hub, Section 115BAB offers a globally competitive base tax rate of just 15% for brand new domestic manufacturing companies.
Just like the previous section, it comes with a flat 10% surcharge and a 4% cess, bringing the Effective Tax Rate to a highly attractive 17.16%.
Strict Eligibility Conditions for Section 115BAB:
- Incorporation Date: The company must be incorporated on or after October 1, 2019.
- Commencement of Production: The company must have commenced its manufacturing or production activities on or before March 31, 2024. (Note: Companies setting up operations after this deadline must monitor government budgets for timeline extensions or default to the 22% rate under 115BAA).
- No Re-branding: The company must be genuinely new. It cannot be formed by splitting up or reconstructing a business that was already in existence.
- Machinery Rules: You cannot simply transfer old plant and machinery to a new company to get the 15% rate. At least 80% of the machinery used must be brand new (second-hand imported machinery never used in India before is generally allowed).
- Core Business: The business must exclusively be manufacturing or production. Software development, mining, book printing, and gas bottling do not qualify.
- Filing Requirement: To opt into this regime, the company must file Form 10-ID before the due date of their first-ever income tax return.
4. Tax Rates for Foreign Companies Operating in India
A foreign company is defined as a corporate entity that is incorporated outside of India. If a foreign company sets up a branch office, project office, or generates taxable income directly from Indian operations, that specific Indian income is subject to corporate tax.
Historically, India levied a very high 40% base tax on foreign companies. However, in recent budgets, the government has rationalized this to make the landscape more welcoming for international players.
The standard base corporate tax rate for foreign companies in India is now 35%.
The Foreign Company Effective Tax Rates
Foreign companies enjoy lower surcharge thresholds compared to domestic companies under the old regime. Here is the breakdown:
| Net Taxable Indian Income | Base Tax Rate | Surcharge | Health & Education Cess | Effective Tax Rate |
| Up to ₹1 Crore | 35% | Nil | 4% | 36.40% |
| ₹1 Crore to ₹10 Crore | 35% | 2% | 4% | 37.13% |
| Above ₹10 Crore | 35% | 5% | 4% | 38.22% |
Special Tax Rates for Specific Foreign Income
It is important to note that not all income generated by a foreign entity is taxed at the 35% business rate. If the foreign company earns income from an Indian source via Royalties or Fees for Technical Services (FTS), this specific income is generally taxed at a higher rate of 50% (plus applicable surcharge and cess), unless a Double Taxation Avoidance Agreement (DTAA) between India and the foreign company’s home country provides a more beneficial, lower withholding tax rate.
5. Understanding Minimum Alternate Tax (MAT)
One of the most complex, yet vital, concepts in Indian corporate taxation is the Minimum Alternate Tax (MAT), governed by Section 115JB of the Income Tax Act.
Why was MAT introduced?
In the past, many highly profitable companies would report massive “book profits” to their shareholders and pay out large dividends. However, when it came time to file their tax returns, they would use every available legal deduction, depreciation allowance, and tax holiday to reduce their “taxable income” down to zero.
To prevent these “zero-tax companies” from escaping the tax net entirely, the government introduced MAT. The rule is simple: if a company’s normal corporate tax liability (calculated after all deductions) falls below a certain percentage of its actual “book profit,” the company must pay MAT instead.
The Current MAT Rate
For companies operating under the traditional (old) tax regime, the current MAT rate is 15% of book profits (plus the applicable surcharge and cess). Recent union budgets for FY 2026-27 have proposed further rationalizing this rate down to 14% to provide more liquidity to businesses.
If a company pays MAT, the difference between the MAT paid and their normal tax liability can be carried forward as “MAT Credit” to offset future tax liabilities for up to 15 assessment years.
The New Regime Advantage
As mentioned earlier, the biggest structural advantage of opting for the new concessional tax regimes (Section 115BAA at 22% or Section 115BAB at 15%) is that these companies are completely exempted from the MAT provisions. What you calculate as your flat rate is exactly what you pay, entirely eliminating the dual-calculation headache of book profits versus taxable income.
6. Corporate Tax Compliance: Deadlines and Advance Tax
Understanding your tax rate is only half the battle; paying it on time is the other. The Indian Income Tax Department operates on strict deadlines, and failing to adhere to them results in severe penal interest under Sections 234B and 234C.
The Advance Tax Schedule
Corporate tax is not paid in a single lump sum at the end of the year. Companies are required to estimate their annual tax liability and pay it in four quarterly installments, known as Advance Tax. For the financial year, the schedule is as follows:
- First Installment: On or before June 15th (Must pay at least 15% of the estimated annual tax liability).
- Second Installment: On or before September 15th (Must pay at least 45% of the estimated annual tax liability).
- Third Installment: On or before December 15th (Must pay at least 75% of the estimated annual tax liability).
- Fourth Installment: On or before March 15th (Must pay 100% of the estimated annual tax liability).
Filing the Income Tax Return (ITR)
After the financial year ends on March 31st, companies must formally file their tax returns.
- Almost all corporate entities file their returns using Form ITR-6.
- For companies whose accounts are required to be audited under the Income Tax Act (which applies to almost all standard corporate entities), the absolute deadline to file the annual tax return is October 31st of the assessment year.
7. Strategic Tax Planning: Which Regime is Right for You?
Choosing between the old 30%/25% regime and the new 22% concessional regime is the most important financial decision a corporate board will make. There is no one-size-fits-all answer.
If your company is heavily capital-intensive, operating in a Special Economic Zone (SEZ), or relying heavily on accelerated depreciation for massive plant and machinery investments, the old regime might still result in a lower actual cash outflow, despite the higher base rate.
However, if you are a service-based business, a software company, or an established enterprise whose tax holidays have naturally expired, shedding the complex deductions to lock in a clean, predictable effective tax rate of 25.17% (under Section 115BAA) is almost always the mathematically superior choice. In many cases, a business woman or man leading a modern enterprise might choose to forgo these deductions entirely just to drastically reduce their compliance costs and litigation risks.
It is highly recommended to run a comprehensive multi-year financial projection using both tax structures before filing Form 10-IC, as the decision to move to the new regime cannot be reversed.
Frequently Asked Questions (FAQs)
Q1: Can a company switch between the old tax regime and the new 22% regime (Section 115BAA) every year depending on which is cheaper?
No. Once a domestic company voluntarily opts into the concessional 22% tax regime by filing Form 10-IC, the decision is irrevocable. The company must remain in that tax regime for all subsequent financial years. This is why thorough financial forecasting is necessary before making the switch.
Q2: Does a foreign company operating a branch in India qualify for the 22% tax rate?
No. The concessional tax rates under Section 115BAA (22%) and Section 115BAB (15%) are exclusively available to domestic companies. Foreign companies operating in India are subject to the standard 35% base corporate tax rate.
Q3: If a woman entrepreneur starts a new software development company, can she claim the 15% tax rate under Section 115BAB?
No. While she can definitely utilize the 22% base rate under Section 115BAA, she cannot use the 15% rate under Section 115BAB. That specific section is strictly reserved for companies engaged purely in the manufacturing or production of physical articles or things. Software development, mining, and trading do not qualify as manufacturing under this law.
Q4: What is Marginal Relief in corporate taxation?
Marginal Relief is a mechanism designed to prevent a situation where a slight increase in a company’s income pushes them into a higher surcharge bracket, causing their tax liability to increase by an amount greater than the actual income earned. The relief ensures that the additional tax paid is capped so it does not exceed the additional income that triggered the surcharge.
Q5: If my company suffers a net loss for the year, do I still need to pay MAT?
If your company has suffered a genuine loss and your “book profits” (as calculated under the Companies Act) are also negative or zero, you will not have to pay Minimum Alternate Tax (MAT). MAT is calculated as a percentage of positive book profits.
