Corporate Tax in India 2026: Rates & Compliance

Corporate tax is the income tax levied on the profits of companies operating in India, and it forms one of the largest components of the country’s direct tax collection. For the assessment year 2026-27 (financial year 2025-26), companies must navigate a base rate structure, two optional concessional regimes, Minimum Alternate Tax, and layers of surcharge and cess. This article sets out how corporate tax applies to domestic and foreign companies and what the return filing obligations look like.

Who pays corporate tax in India

Corporate tax applies to companies incorporated in India (domestic companies) as well as to foreign companies earning income that is taxable in India. A domestic company is taxed on its worldwide income, while a foreign company is generally taxed only on income that is received, accrues, or arises in India, subject to the relevant Double Taxation Avoidance Agreement. Every company, irrespective of profit or loss, is required to file an income tax return each year.

The rate a company pays depends on its category, its turnover, and whether it has opted into one of the concessional tax regimes introduced to encourage investment and simplify compliance.

Tax rates for domestic companies

Under the regular provisions of the Income-tax Act, a domestic company is taxed at one of two base rates depending on turnover:

• 25% where the total turnover or gross receipts in the prescribed prior year did not exceed Rs 400 crore.
• 30% for all other domestic companies that have not opted into a concessional regime.

These are the base rates before surcharge and cess. A company that has not elected a concessional regime continues to be eligible for the various deductions, exemptions, and incentives available under the Act, and remains subject to Minimum Alternate Tax.

Section 115BAA — the 22% concessional regime

Section 115BAA allows any domestic company to opt for a flat base rate of 22%, regardless of turnover. The trade-off is that the company must forgo most specified deductions and incentives, such as additional depreciation and certain area-based or investment-linked deductions. Once exercised, the option is irreversible for that company in subsequent years.

Under 115BAA, the surcharge is a flat 10% and health and education cess is 4%, producing an effective tax rate of roughly 25.17%. A significant advantage of this regime is that companies opting for it are not liable to Minimum Alternate Tax, which makes it attractive for established, profitable companies.

Section 115BAB — the 15% regime for new manufacturing

Section 115BAB offers a base rate of 15% to newly incorporated domestic companies engaged in manufacturing or production, subject to conditions on the date of incorporation, commencement of manufacturing, and non-use of previously used plant and machinery beyond permitted limits. It is designed to attract fresh investment into the manufacturing sector.

As with 115BAA, the surcharge is a flat 10% and cess is 4%, giving an effective rate of about 17.16% for eligible companies. Companies under 115BAB are also outside the scope of Minimum Alternate Tax. The regime carries anti-abuse provisions, and transactions with related parties may be scrutinised to ensure profits are not artificially shifted into the concessionally taxed entity.

Minimum Alternate Tax (MAT)

Minimum Alternate Tax exists to ensure that companies reporting healthy book profits but paying little or no tax due to exemptions and deductions still contribute a minimum amount. MAT is currently levied at 15% of book profit (plus applicable surcharge and cess) where the tax computed under normal provisions is lower than this amount.

Key points to keep in mind:

• MAT does not apply to companies that have opted for Section 115BAA or Section 115BAB.
• MAT credit for the excess paid can generally be carried forward and set off in later years, up to fifteen assessment years.
• The rate is scheduled to be reduced to 14% for later years; companies should confirm the applicable rate for the relevant year before computing liability.

Tax rates for foreign companies

The base corporate tax rate for a foreign company was reduced from 40% to 35% by recent Finance Act changes, a move intended to improve India’s competitiveness for inbound investment. This 35% rate applies to a foreign company’s India-sourced business income under the general provisions, before surcharge and cess.

Certain specific incomes, such as royalties or fees for technical services, may be taxed at special rates prescribed under the Act or, where more beneficial, under the applicable tax treaty. Foreign companies should always test the domestic rate against treaty relief and ensure the necessary documentation, including a tax residency certificate, is in place.

Surcharge and health and education cess

On top of the base rate, a surcharge applies at rates that vary by category and income level, and a health and education cess of 4% is then levied on the aggregate of tax plus surcharge.

• Domestic companies under the regular regime: surcharge of 7% where total income exceeds Rs 1 crore but not Rs 10 crore, and 12% where it exceeds Rs 10 crore.
• Domestic companies under Section 115BAA or 115BAB: a flat surcharge of 10% irrespective of income level.
• Foreign companies: surcharge of 2% where income exceeds Rs 1 crore but not Rs 10 crore, and 5% where it exceeds Rs 10 crore.

The 4% cess is uniform across all categories and is calculated on income tax as increased by surcharge. Because of these layers, the effective tax rate is always higher than the headline base rate, and this should be factored into advance tax planning.

Return filing and audit

Companies file their annual income tax return in Form ITR-6, except for companies claiming exemption under Section 11 (income from property held for charitable or religious purposes), which use ITR-7. Filing is entirely electronic and must be verified using a digital signature.

Additional compliance points include:

• A tax audit under Section 44AB is required where turnover or receipts exceed the prescribed thresholds, with the audit report furnished in Form 3CA and Form 3CD.
• Companies opting into Section 115BAA must file Form 10-IC, and those opting into Section 115BAB must file Form 10-ID, on or before the due date for the return.
• The due date for companies is generally 31 October of the assessment year, extended to 30 November where transfer pricing provisions and Form 3CEB apply.
• Advance tax is payable in four instalments during the year, and interest is charged for shortfall or deferment.

Choosing the wrong regime, or missing the prescribed form, can lock a company into a less favourable position or trigger denial of the concessional rate, so the decision should be reviewed before the first return under a new regime is filed.

Frequently asked questions

Can a company switch back after opting for 115BAA or 115BAB?

No. Once a domestic company exercises the option under Section 115BAA or 115BAB, the choice applies to that year and all subsequent years and cannot be withdrawn. The decision should be modelled carefully before it is made.

Is MAT payable if we choose the 22% or 15% regime?

No. Companies that validly opt for Section 115BAA or Section 115BAB are excluded from Minimum Alternate Tax. Companies under the regular regime remain within the scope of MAT.

What is the effective tax rate under the concessional regimes?

Including the flat 10% surcharge and 4% cess, the effective rate is approximately 25.17% under Section 115BAA and about 17.16% under Section 115BAB for eligible new manufacturing companies.

Which return form does a company file?

Most companies file Form ITR-6. Companies claiming exemption under Section 11 file ITR-7. A tax audit report in Form 3CA and 3CD is also required where turnover crosses the specified limits.

Has the foreign company tax rate changed?

Yes. The base rate for foreign companies was reduced from 40% to 35%, before the applicable surcharge and 4% cess. Treaty rates may apply to specific income streams where they are more beneficial.

Corporate tax planning involves balancing rate selection, deductions foregone, MAT exposure, and the compliance calendar. If you would like help choosing the right regime, computing your liability accurately, and completing your income tax filing and audit on time, the team at TAXAJ can manage your corporate tax and compliance from end to end.