The Indian economy is fast changing, with startups, multinationals, and SMEs playing a significant role in innovation and creation of jobs. However, there is one thing that is always at the center of corporate activity: corporate tax. Knowledge of the mechanics of corporate tax is not merely a compliance requirement, but a strategic lever that can affect profitability, investment planning and long-term sustainability.
This blog demystifies the complexities of corporate tax in India including the types of taxes and slab rates, deductions, compliance rules and planning techniques. So, let us take a plunge!
Understanding Corporate Tax
Corporate tax is a direct tax that is levied on net incomes of companies. All the entities that are registered under the Indian law and generate income are subject to pay tax under the Income Tax Act, 1961. The tax is imposed not only on domestic companies (incorporated in India) but also on foreign companies that derive income in Indian territory.
The corporate tax paid in FY 202324 was almost 28 percent of total direct tax collections, which emphasizes its importance to national revenue and policy-making.
Corporate tax is governed primarily by:
- Income Tax Act, 1961
- Finance Acts passed annually
- CBDT notifications and circulars
Why Corporate Tax Matters
- Provides finances for Government schemes, infrastructure and defense initiatives
- Impacts international tax competitiveness in India
- Promotes/penalises some economic activities through exemptions and deductions
Scope of Taxation:
- Income ‘accrued’ or ‘arising’ in India
- Income received or treated to be received in India
- International revenue of domestic companies
Classification of Companies for Taxation
The liability to pay tax in India differs according to the type of company.
a) Domestic Companies
Registered under Indian law:
- Private Limited Companies
- Public Limited Companies
- OPCs or One Person Companies
- Producer Companies
- Indian subsidiaries of foreign companies
They pay tax in India on their worldwide income.
b) Foreign Companies
Incorporated outside India but operate in India through:
- Branch / Liaison Offices
- Project Offices
- Technical collaborations
They pay tax in India on the income generated in India.
c) Special Categories
- Startups: Registered under DPIIT, enjoy tax holidays under Section 80-IAC of the Income Tax Act
- SEZ Units: Can avail profit-linked deductions under Section 10AA
Corporate Tax Rates in India (FY 2025–26)
- For Domestic Companies:
| Company Type | Base Tax Rate | Conditions |
| General Companies | 30% | Turnover > ₹400 crore |
| Small Companies | 25% | Turnover ≤ ₹400 crore |
| New Manufacturing Companies (Listed in Section 115BAB) | 15% | Registered after 1st Oct 2019 and before 31st March 2024 |
| Companies opting for Section 115BAA | 22% | No other exemptions/deductions allowed |
Add:
- Surcharge: 7% or 12% depending on income
- Health & Education Cess: 4% on tax + surcharge
B. For Foreign Companies:
| Income Type | Tax Rate |
| Royalties and fees for technical services | 50% |
| Other income (business income, capital gains and so on) | 40% |
Companies availing of Section 115BAA or 115BAB cannot claim various income tax exemptions like SEZ benefit (Section 10AA), additional depreciation, and so on.
How Taxable Income is Calculated
The Gross Total Income Includes:
- Revenue from business operations
- Capital gains
- Interest, rent, royalty & technical fees
- Dividend income (taxable in hands of the recipient)
Key Adjustments:
- Add back inadmissible expenses (e.g., penalties, personal expenses)
- Deduct eligible expenses and depreciation
- Set-off & carry forward of losses (As per Sections 72, 73)
- Book Profit Adjustments for MAT computation (As per Section 115JB)
At the time of filing income tax, the income must be computed per “profits and gains of business or profession” as per Sections 28 to 44 of the Act.
Key Deductions and Exemptions
Strategic income tax planning at the time of filing income tax often hinges on utilising legitimate deductions and exemptions.
Popular Deductions:
- Section 80JJAA: Deduction of 30% of additional employee cost for 3 years
- Section 35(1)(ii)/(iia)/(iii): Scientific research
- Section 35AD: Capital expenses on specified infrastructure businesses
- Section 32: Depreciation (normal & additional)
- Section 10AA: 100%/50% deduction for SEZ units for 5/10 years
- Section 80-IAC: 100% tax exemption for eligible startups (3 out of first 10 years)
Startups, SEZs, biotech companies and green energy companies benefit from a rich framework of deductions.
Corporate Tax Filing Procedure
Mandatory Requirements:
- PAN & TAN
- Maintenance of proper books of accounts (Section 44AA)
- Income Tax audit under Section 44AB if turnover exceeds ₹1 crore (₹10 crore if 95% receipts are digital)
ITR Forms Applicable:
- ITR-6: For all companies (except those claiming Income Tax exemption under Section 11)
- ITR-7: For Section 8 companies and charitable trusts
Key Filing Milestones:
| Event | Due Date |
| Tax audit report | 30 September |
| Income tax return (with audit) | 31 October |
| Income tax return (without audit) | 31 July |
All corporate tax filings must be done electronically using DSC on the Income Tax e-filing portal.
Advance Tax and TDS Obligations
- Advance Tax (Section 208):
Applicable if the tax liability exceeds ₹10,000 in a financial year.
| Installment | Due Date | Minimum Tax Payable |
| 1st | 15 June | 15% of total tax payable |
| 2nd | 15 September | 45% of total tax payable |
| 3rd | 15 December | 75% of total tax due |
| 4th | 15 March | 100% of total tax due |
- TDS Compliance (Chapter XVII-B):
Companies must deduct tax on:
- Salaries (As per Section 192)
- Rent (Section 194I)
- Contractor payments (Section 194C)
- Professional fees (Section 194J)
- Interest (Section 194A)
Non-compliance attracts:
- Disallowance of expense under Section 40(a)(ia)
- Interest as per section 201(1A)
- Penalties and prosecution as mentioned in the Income Tax Act
Compliance and Penalties
Non-compliance to tax obligations can severely affect business reputation and finances.
Key Penalties for Non-Compliance:
| Violation | Relevant Section | Penalty |
| A delay in return filing | 234F | ₹5,000 – ₹10,000 |
| Not filing Income Tax Return | 276CC | Prosecution (up to 7 years) |
| Failure to deduct TDS | 271C | Equal to TDS amount |
| Underreporting of Income | 270A | 50% of tax payable |
| Non-maintenance of company books | 271A | ₹25,000 |
| Non-compliance with audit rules | 271B | ₹1.5 lakh or 0.5% of turnover |
Prompt rectification, revised returns, and voluntary disclosures can help mitigate these penalties.
Budget 2025–26 Highlights
The new budget presented business-friendly changes to decrease the burden of compliance and enhance the ease of doing business:
- For Startups: Deadline to avail 3-year tax holiday extended to March 2026
- MAT credit: The 15 years period of utilization was increased to 20 years
- SEZ Rationalization: New rules to allow domestic tariff area (DTA) sales with minimal duty
- IFSC Reforms: Tax exemptions awarded to global financial institutions operating in GIFT City
With such changes and reforms, India aims to become a tax-efficient destination for global investors.
Corporate Tax Planning Strategies
Good tax planning involves aligning business decisions with tax benefits while remaining compliant.
Certain Effective Tactics for Companies:
- Choosing between 22% regime (115BAA) vs. regular regime
- Smart utilisation of carry-forward losses, and depreciation
- Structuring companies to optimise group tax benefits
- Application of foreign tax credits (FTC) on cross-border entities
- Availing tax deduction through investment in R&D and green energy initiatives
Avoid artificial transactions or shell structures. This can invite GAAR (General Anti-Avoidance Rules) scrutiny.
Impact of Corporate Tax on Business Decisions
Important Influences:
- FDI Planning: Lower tax burden makes India more attractive to global investors
- Dividend Policy: Post-DDT regime, shareholders need to pay tax at respective slab rates
- Organisational Form: LLPs may be more tax-efficient in certain situations
- Transfer Pricing: Arms-length pricing is mandatory for MNCs U/s 92
An informed corporate tax strategy improves operational efficiency, investor trust, and global competitiveness.
Final Thoughts:
Corporate tax in India is not only about paying dues, it is also about strategic planning, compliance and long-term growth. You can be a bootstrapped startup or a Fortune 500 company, but knowing the ins and outs of tax policy will keep you at the forefront.
As the tax regulations change, budgets become dynamic and tax administration is conducted digitally, businesses need to be alert and on the front foot. Work with taxation experts, take advantage of the provisions of the law and play a responsible role in the economic development of India.
Be compliant and be competitive. To get a customised tax plan, contact an authorised tax consultant today.
