In a country as economically vibrant and diverse as India, understanding corporate tax isn’t just a legal necessity—it’s a strategic advantage. Whether you are a startup founder in Bengaluru, a CFO in Mumbai, or a foreign investor eyeing the Indian market, corporate tax plays a pivotal role in shaping your bottom line.
With the Indian government pushing for greater transparency and ease of doing business, corporate tax laws have undergone significant changes in recent years. This blog walks you through everything you need to know about corporate tax in India, including tax rates, compliance requirements, and key provisions that could impact your business decisions.
What Is Corporate Tax?
Corporate tax is a direct tax levied on the profits of companies operating in India. It applies to both domestic and foreign companies, depending on their income and operations within Indian territory.
In simpler terms, when a company earns profit, a portion of that goes to the Government as corporate tax. It’s governed by the Income Tax Act, 1961, and administered by the Central Board of Direct Taxes (CBDT).
Types of Companies Under Indian Tax Laws
Not all companies are treated equally under the Indian tax regime. Here’s how they are categorised:
1. Domestic Companies
These are companies incorporated in India. Foreign companies whose place of effective management (POEM) is in India may be treated as residents for tax purposes but are not classified as domestic companies. Domestic companies are taxed on their global income.
2. Foreign Companies
A company not incorporated in India but earning income from India is classified as a foreign company. They are taxed only on income accrued or received in India.
3. Private vs Public Companies
The tax treatment is largely the same, but compliance and disclosure obligations vary.
4. LLPs (Limited Liability Partnerships)
Though not classified as companies under the Companies Act, LLPs are taxed at a flat rate of 30% plus applicable surcharge and cess. They are not subject to MAT but may be subject to Alternate Minimum Tax (AMT) in certain cases. LLPs are not subject to Dividend Distribution Tax (DDT).
Corporate Tax Rates in India (AY 2025–26)
Tax rates for companies in India differ based on their turnover and the type of tax regime chosen.
For Domestic Companies:
| Company Type | Applicable Tax Rate |
| Turnover ≤ ₹400 crore (in FY 2022–23) | 25% |
| Other domestic companies | 30% |
| Opting for Section 115BAA | 22% (no exemptions or deductions) |
| Opting for Section 115BAB (new mfg. cos.) | 15% (conditions apply) |
Note: The concessional rates under Sections 115BAA and 115BAB are part of the government’s effort to make India a more attractive destination for investment and manufacturing.
For Foreign Companies:
| Nature of Income | Tax Rate |
| Royalty or fees for technical services | 10% (under normal provisions) |
| Other income | 40% |
Note: Tax rates for foreign companies may be reduced under applicable Double Taxation Avoidance Agreements (DTAAs).
Surcharge and Cess on Corporate Tax
Tax doesn’t stop at the basic rate. You also need to factor in surcharge and health & education cess, which can significantly increase your effective tax rate.
Surcharge on Income Tax:
For Domestic Companies:
- 7% on income exceeding ₹1 crore but up to ₹10 crore
- 12% on income exceeding ₹10 crore
For Foreign Companies:
- 2% on income exceeding ₹1 crore but up to ₹10 crore
- 5% on income exceeding ₹10 crore
Health and Education Cess:
- A flat 4% on the total tax amount (including surcharge)
For example, if your base corporate tax is 22% under Section 115BAA, the effective tax liability may go up to approximately 25.17% after adding surcharge and cess.
Corporate Taxation: Old vs. New Regime
India offers companies the choice between the traditional tax regime (with exemptions and deductions) and the new concessional regime introduced via Section 115BAA and 115BAB.
Old Regime:
- Allows multiple exemptions like additional depreciation, R&D deductions, SEZ benefits, etc.
- Higher tax rates (25%–30%)
New Regime:
- Lower tax rates (22% for existing domestic companies, 15% for new manufacturing companies)
- No deductions or exemptions
Companies must carefully evaluate which regime offers better tax efficiency based on their business model and investment structure.
Minimum Alternate Tax (MAT)
Some companies manage to bring their taxable income down to near-zero using various deductions. To prevent this, the government levies Minimum Alternate Tax (MAT).
Key MAT Provisions:
- 15% of book profit (plus surcharge and cess) is payable as MAT
- Applicable only to companies under the old regime
- Companies under Section 115BAA or 115BAB are exempted from MAT
- Effective MAT rate (after surcharge and cess) is approximately 17.47%
- MAT credit can be carried forward for 15 assessment years to set off against future tax liabilities
Dividend Distribution Tax (DDT) – Historical Context
Earlier, companies were required to pay Dividend Distribution Tax at the rate of 15% on dividends paid to shareholders. However, this tax was abolished in Budget 2020.
Post-DDT Regime:
- Dividends are now taxed in the hands of shareholders
- Companies are required to deduct TDS (Tax Deducted at Source) before distributing dividends
- For resident shareholders: TDS @ 10% (if the dividend exceeds ₹5,000)
- For non-residents: TDS @ 20% or as per DTAA (plus surcharge and cess)
Corporate Tax Compliance in India
Compliance is non-negotiable—and complex. Here’s what companies must keep an eye on:
Important Filings:
- Income Tax Return: ITR-6 for most companies
- Tax Audit (if turnover exceeds ₹1 crore, or ₹10 crore in case of digital transactions)
- Form 3CD and Form 3CA/3CB (audit documentation)
- Form 3CEB (for transfer pricing, where applicable)
Due Dates:
- Tax audit report: 30th September
- Return filing: 31st October for companies requiring audit
Advance Tax:
- Must be paid in four instalments across the financial year
- Applicable if tax liability exceeds ₹10,000 in a financial year
- Penalty and interest apply for non-payment or shortfall
Being compliant not only avoids penalties but also boosts credibility with investors and regulators.
Penalties for Non-Compliance
Failure to comply with corporate tax rules can result in hefty penalties and even prosecution.
Common Penalties:
- Late filing of return: ₹5,000 to ₹10,000 under Section 234F
- Interest for late payment: 1% per month under Sections 234A, 234B, and 234C
- Penalty for concealment: Up to 200% of the tax evaded
- Prosecution: Imprisonment up to 7 years in extreme cases
Timely and accurate filings help avoid financial and reputational damage.
Recent Changes in Corporate Tax Laws
India’s tax system is dynamic, with annual amendments through Union Budgets and Finance Acts.
Notable Updates (Budget 2024 Highlights):
- Extension of tax holiday sunset clause for GIFT City units till 31st March 2031
- Clarification on taxation of ESOPs for eligible startups
- Greater digitisation and AI-based selection for scrutiny
- Emphasis on faceless assessments and appeals to enhance transparency
These reforms aim to simplify compliance, reduce litigation, and promote investor confidence.
Impact of Corporate Tax on Business Decisions
Corporate tax doesn’t just affect how much you pay—it influences how you plan, invest, and grow.
Strategic Considerations:
- Choosing the right tax regime can improve cash flow
- Tax rates affect pricing strategies and profit margins
- Availability of MAT credit and depreciation impacts asset acquisition plans
- Foreign companies assess effective tax cost and compliance burden before committing FDI
Smart tax planning can often spell the difference between growth and stagnation.
Final Thoughts:
Corporate tax in India is not merely a statutory obligation—it’s a strategic lever that shapes a company’s financial architecture. Navigating the nuances of tax regimes, deductions, MAT and compliance deadlines empowers businesses to plan proactively and remain competitive.
Whether you are managing an established corporation or scaling a startup, understanding the ins and outs of corporate tax in India can help you make better financial decisions and avoid costly pitfalls. And with India’s ongoing push toward digitalisation and simplification, there’s never been a better time to align your tax strategy with your business goals.
Stay proactive. Stay compliant. And most importantly, stay tax-smart.
