Running a business in India comes with immense opportunities—and a fair share of responsibilities. One of the most critical (and often complex) aspects of doing business here is taxation. Whether you are a budding entrepreneur, an SME owner, or managing a large corporation, understanding the landscape of business taxes in India can make or break your compliance game.
India has a multi-layered tax system, governed by both central and state authorities. And with evolving regulations and digital reforms, it’s vital to stay updated. In this blog, we will unpack the different types of business taxes in India—from direct income-based levies to transaction-based indirect taxes—to help you operate smarter, stay compliant and optimise your tax outgo.
Classification of Business Taxes in India
The Indian tax framework is broadly divided into:
- Direct Taxes: Levied directly on income or profits (e.g., Income Tax, Corporate Tax)
- Indirect Taxes: Charged on goods and services (e.g., GST, Customs Duty)
Additionally, taxes are classified by their administrative authority:
- Central Taxes: Imposed by the Government of India
- State/Local Taxes: Imposed by individual states or municipal authorities
Let’s explore each of these in detail.
Direct Taxes Applicable to Businesses
1. Income Tax
Every business—whether a sole proprietorship, partnership, or LLP—is subject to Income Tax under the Income Tax Act, 1961.
Applicable Tax Slabs:
- Proprietorships: Taxed based on the applicable individual slab rates of the owner.
- Partnerships and LLPs: Taxed at a flat rate of 30% on net profits (plus surcharge and cess).
Additional liabilities include:
- Surcharge (10%–12%) on higher incomes
- Health & Education Cess at 4%
Businesses earning more than ₹10,000 in advance tax liability must pay tax in instalments across the year.
2. Corporate Tax
Applicable to domestic and foreign companies, corporate tax is a major source of revenue for the government.
Tax Rates for AY 2025–26:
Domestic Companies:
- 25% (if turnover ≤ ₹400 crore)
- 30% (otherwise)
- Section 115BAA regime: 22% (no exemptions or deductions)
- Section 115BAB regime (new manufacturing companies): 15% (conditions apply)
Foreign Companies:
- 40% on income from India (general)
- 10% on royalties and fees for technical services (subject to conditions)
Plus:
- Surcharge: 7%–12% (domestic); 2%–5% (foreign)
- Health & Education Cess: 4%
India’s new tax regime allows companies to opt for lower rates without availing deductions, offering a strategic tax planning tool.
3. Dividend Taxation
Earlier, companies paid a Dividend Distribution Tax (DDT), but that was abolished in Budget 2020.
Now:
- Dividends are taxed in the hands of shareholders
- Companies must deduct TDS @10% (if the dividend paid to a resident shareholder exceeds ₹5,000 annually)
- For non-residents, TDS is 20% (plus surcharge and cess) or as per the applicable DTAA
This shift has enhanced transparency but increased compliance for investors and companies.
4. Capital Gains Tax
Selling business assets, shares, or real estate? The profits are taxed as capital gains:
- Short-Term Capital Gains (STCG):
- 15% for listed equity shares where STT is paid
- Otherwise taxed as per applicable slab rates
- Long-Term Capital Gains (LTCG):
- 10% (on gains above ₹1 lakh) for listed equity shares (no indexation)
- 20% with indexation for other assets
Capital gains often come into play during mergers, acquisitions, and investment exits—so keeping a keen eye on this is crucial.
5. Presumptive Taxation Schemes
To reduce the burden on small businesses, India offers simplified tax compliance under Sections 44AD, 44ADA, and 44AE:
- Section 44AD: For businesses with turnover up to ₹3 crore (if 95%+ receipts are digital), otherwise ₹2 crore. Taxed on 8% (or 6% for digital receipts) of gross receipts.
- Section 44ADA: For professionals with income up to ₹75 lakh (if 95%+ receipts are digital), otherwise ₹50 lakh. Taxed on 50% of gross receipts.
- Section 44AE: For transport businesses with up to 10 vehicles; fixed tax per vehicle depending on type and capacity.
These schemes are game-changers for MSMEs, offering hassle-free taxation with minimal paperwork.
Indirect Taxes Applicable to Businesses
6. Goods and Services Tax (GST)
Launched in July 2017, GST replaced multiple indirect taxes and unified India’s indirect tax structure.
GST Structure:
- CGST: Collected by the Centre
- SGST/UTGST: Collected by State/UT
- IGST: Collected for interstate transactions
Applicability:
GST registration is mandatory for businesses with aggregate turnover exceeding:
- ₹40 lakh (for goods)
- ₹20 lakh (for services)
- ₹10 lakh in certain special category states
Key Compliance:
- Monthly/quarterly GST returns
- E-invoicing (mandatory for businesses with turnover above ₹5 crore in any financial year from 2017–18 onwards)
- Input Tax Credit (ITC) to claim GST paid on purchases
- Reverse Charge Mechanism (RCM) for specified supplies
GST is a detailed and high-stakes area for compliance, with frequent updates and audit requirements.
7. Customs Duty
If you are into import-export, customs duty becomes relevant.
Types of Customs Duties:
- Basic Customs Duty (BCD)
- IGST on imports
- Social Welfare Surcharge
India is moving towards trade facilitation, but importers/exporters must comply with the Customs Act, 1962, and ensure correct classification and valuation.
8. Excise Duty (Limited Scope Post-GST)
Post-GST, Central Excise Duty is now applicable only to:
- Petroleum products
- Tobacco
- Alcoholic products (by State Excise)
For most goods, excise has been subsumed under GST, making it relevant only to certain legacy sectors.
Other Business Taxes and Levies
9. Professional Tax
A state-level tax, professional tax is levied on:
- Salaried employees
- Professionals (lawyers, CAs, architects)
- Businesses and employers
Rates and slabs vary by state. For instance:
- In Maharashtra: Up to ₹2,500 annually
- In Karnataka: ₹200/month for income above ₹15,000
Employers must deduct and deposit professional tax monthly and file returns as per state-specific rules.
10. Stamp Duty and Registration Fees
When businesses enter into contracts, lease property, or issue shares, stamp duty applies.
Examples:
- Lease deeds, MOAs, AOAs
- Loan agreements, share certificates
Stamp duty varies by state and the nature of the document. Inadequate stamping may render the document inadmissible in court—a legal headache to avoid!
11. Municipal and Local Taxes
These are often overlooked but essential, especially for physical establishments.
Key Local Levies:
- Property Tax: Paid annually to local municipal bodies
- Trade Licence Fees: Required for specific trades (restaurants, clinics, warehouses)
- Advertisement Tax: Levied on hoardings and in-premise signage
Compliance ensures smooth municipal operations, and non-compliance can invite penalties or closures.
Final Thoughts:
India’s tax regime is vast, dynamic, and increasingly digitised. From direct income taxes like corporate and capital gains tax to indirect levies like GST and customs, businesses in India must tackle multiple layers of taxation.
Here’s the good news: With the right understanding and planning, taxation doesn’t have to be a burden. It can become a tool for strategic decision-making, cash flow optimisation and growth.
So, whether you are registering a startup, managing an SME, or scaling a multinational, make sure you:
- Stay up to date with the latest regulatory changes
- Maintain clear financial records
- Seek expert guidance when needed
After all, in business—as in life—being tax-smart is being future-ready.
