What is Corporate Tax in India?

Corporate Tax in India: Meaning, Tax Rates & Key Rules

Corporate tax in India explained with the latest rates, slabs, exemptions, and smart tax planning strategies for companies

Written by : Knowledge Centre Team

2026-01-08

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10 minutes read

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Corporate tax meaning, simply put, is tax on the profits or net income of a corporation. Corporate tax is paid on a company’s taxable income, which includes the company’s revenue after deductions such as cost of goods sold (COGS), general and administrative (G&A) expenses, selling and marketing, depreciation, research & development etc. Careful management of these expenses can be a useful aid to save corporate tax and minimise the loss of income through taxation.

Company tax or corporate tax is an Income Tax for income earned by corporations. Different countries have their own rules with respect to corporate tax. Let us understand corporate tax in detail, the income tax rate for companies, the corporate tax rate in India, the importance of corporate tax and how it is calculated. 

Key Takeaways 

  • Effective tax planning helps companies reduce liabilities and maximise savings

  • A company's taxable income includes business profits, capital gains, interest, dividends, and rentals

  • MAT ensures fair taxation and allows companies to carry forward unadjusted credit for 15 years

  • Corporate tax is levied on a company's taxable income after deductions

  • File corporate tax returns timely to avoid penalties

What is a Corporate?

Section 2(17) of the Income Tax Act, 1961, defines a corporate as a company incorporated in India or outside India (under the laws of that foreign country). The definition also includes institutions, associations and bodies of individuals which have been assessed as a corporation for any assessment years after 1922.

Apart from these, the Central Board of Direct Taxes (CBDT) can declare an institution, association or body of individuals to be taxed as a corporate. However, this declaration is applicable only for the assessment year in which it is made.

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Types of Corporations (Companies)

Corporations in India are classified based on where their management and control reside, which affects tax residency status. A corporation can be defined as a legal entity independent from its shareholders that is entitled to certain rights and functions/duties of its own. In India, corporations can be divided into two categories:

  1. Domestic Corporations: Any company whose management and control are entirely situated in India and is registered under the Indian Companies Act of 1956 or 2013 is referred to as a domestic corporation. If the Indian arm of a foreign company is wholly controlled and managed within the country, it may also be deemed a domestic corporation.
  2. Foreign Corporations: A company that is based outside India or has a portion of its operations controlled and managed outside the nation’s borders is referred to as a foreign corporation.

What is the "Income of a Company"?

A company or corporation can have multiple sources of income. The tax rates the company will use for estimating the tax liability will depend on these incomes. A company’s taxable income may include various income types calculated over the financial year:

  • Profits and gains from business activities
  • Interest and dividend income from treasury operations
  • Capital gains from the sale of assets
  • Rental income from property
     

What is Corporate Tax in India?

Corporate tax, company tax or, corporation tax in India is a direct tax regime for businesses. All legal entities involved in business activities within Indian borders are expected to pay their taxes as per the corporate tax laws. Thus, the corporate tax rules will apply to both domestic as well as multinational organisations operating in India.

Corporate Tax Rates for Domestic Companies AY 2025-2026

Corporate tax rates for domestic companies are as follows: 

ConditionIncome Tax Rate (excluding surcharge and cess)

Total Turnover or Gross Receipts during the previous year 2020-21, does not exceed ₹ 400 crores

25%

If opted for Section 115BA

25%

If opted for Section 115BAA

22%

Any other Domestic Company

30%

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Did You Know?

India’s corporate tax rate was reduced from 30% to 22% in 2019 under Section 115BAA to boost investment and economic growth.

 

 Source: PIB

 

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Corporate Tax Rates for Foreign Firms AY 2025-2026

Foreign companies are taxed differently based on the type of income, as per the Income Tax Act.. Corporate Tax for foreign  firms is as follows:

ConditionTax Rate

Income earned as royalty from the Indian government or an Indian company, based on agreements established between April 1, 1961, and March 31, 1976, or fees received for providing technical services under agreements made between March 1, 1964, and March 31, 1976, is subject to specific tax treatment, provided these agreements received approval from the Central Government

50%

Any other income 

40%

Corporate Tax Rates for Domestic Companies AY 2025-26

Corporate tax rates applicable for domestic firms are as follows:

SectionTax RateSurcharge & CessEffective Tax Rate
Section 115BA: Companies with a turnover of up to ₹400 Crore in FY 2017-1825%7% / 12%* + 4%27.82% / 29.12%
Section 115BAA: Domestic companies not claiming any exemptions/incentives22%10% + 4%25.17%
Section 115BAB: New domestic manufacturing companies15%10% + 4%17.16%
Companies not falling under any of the sections above30%7% / 12%* + 4%33.38% / 34.94%

*Surcharge at 7% will apply to companies with total income between ₹1 crore & ₹10 crore. For companies with a total income above ₹10 crore surcharge applies at 12%

Corporate Tax Rates for Foreign Companies AY 2025-26

Income tax rates for foreign companies and institutions applicable for AY 2025-26 are as follows:

ParticularsTax Rate
Royalties & Fees for technical services received from the Indian Govts. or Indian Corporates, based on approved agreements made before April 1, 197650%
Any other income40%

Surcharge Rates in Addition to the Rates Above

Surcharge rates on the income of foreign companies apply as given below:

Total IncomeSurcharge Rate
More than ₹1 crore but below ₹10 crore2%
More than ₹10 crore5%

 

  • Health & Education Cess: Health and Education Cess applies to the total tax liability after surcharge (if applicable) at the rate of 4%. A corporate tax example is, if the tax as per the applicable tax rate is ₹ 25 crore and the surcharge is 10%, Health and Education Cess of 4% will apply to ₹ 27.5 crores (25x1.1).

  • Minimum Alternate Tax (MAT): Section 115JB defines that Minimum Alternate Tax (MAT) is applicable to the book profits of the firm. MAT cannot be lower than 15% of book profits for both domestic and foreign companies. However, for a company which is a unit of an international financial services centre and derives all of its income as convertible foreign exchange MAT will be 9%. MAT does not apply to companies opting for taxation under Sections 115BAA or 115BAB.

  • Liability of Minimum Alternate Tax (MAT): MAT payments are available as a MAT credit to the companies liable to pay the tax. The credit has to be adjusted with the actual tax liability of the company in the AY. In the case, where the MAT paid by the firm is higher than its actual tax liability, the difference amount is available for carrying forward. The firm can carry forward unadjusted MAT credit for up to 15 years (10 years for MAT credits before AY 2018-19). The carried forward balance of MAT credit from prior AYs can be adjusted only with the balance tax liability after deducting the MAT payment for the same AY.

  • Application & Exemption of MAT: Every company registered in India is liable to pay MAT under Section 115JB. This includes companies operating in designated Special Economic Zones (SEZs). These provisions will not apply in the following cases:

    • Income earned through the life insurance business

    • Shipping income where tax is applicable based on the tonnage

    • A foreign entity belonging to a territory or country which has an agreement with India under Section 90(1) and does not have a permanent establishment in India as per the agreement under the section

    • The foreign entity belongs to a territory or country which does not have an agreement with India, but the entity is not bound by any Indian corporate law to register in India

  • Dividend Distribution Tax: With the Finance Act, 2020, dividends from domestic firms are taxable in the hands of recipients, while the firm is no longer liable to pay a distribution tax. However, the distributing firm is required to deduct TDS at the rate of 10% for dividend payments in excess of ₹ 5000.

    Before AY 2021-22, the firms were required to pay a dividend distribution tax at an effective rate of 20.56% (including surcharge and cess).

Corporate Tax Planning

Corporate tax planning gives you a fair idea of the available scope of expenditure, investments and treasury operations for minimising the tax outflow in the coming financial year. Tax planning also gives the corporations the opportunity to postpone tax outflow on incomes which are not necessary in the financial year. For example, capital gains, interest incomes, etc. Advance planning will give the corporation the opportunity to use available deductions and minimise tax liability legally.

Tax Deductions Applicable to Corporate Tax

Minimising payable taxes can be done by taking note of deductions, exemptions and rebates as well as the appropriate management and reporting of the organisation’s expenses. These deductions may include:

  • Capital Gains, which can either be taxed at a flat rate of 15% or 20% or may be tax exempt under Sections 54D, 54G, 54GA 54EC etc.
  • Donations to charitable organisations, which may be 50 -100% tax exempt under Section 80G, are subject to terms and conditions.
  • Dividends, which may be eligible for rebates in certain cases.
  • Deductions for depreciation under Section 32, which allows for a 15% deduction for the depreciation of the cost of old assets such as machinery and an additional 20% on the purchase of new assets in the business of manufacture or production of any article or thing in the business of generation, transmission or distribution of power.
  • Deduction in respect of employment of a new employee u/s 80JJAA.

Income Tax Return Filing for Companies

 

  1. What is the due date for filing an income tax return (ITR)?

    All companies including both domestic and foreign, must file their ITRs before 31st Oct of the applicable assessment year if they require an audit. This limit is applicable to companies coming into existence within the same year when they need to be audited.

    Companies which do not require auditing of books must submit their ITRs on or before 31st July.

  2. What are the tax return forms to be filed by a company?

    The companies filing their ITR in India need to submit the following forms:
    • ITR 6: Applicable to all companies except those claiming relief under section 11
    • ITR 7: All companies registered under section 8 of the Companies Act, 2013
  3. Tax audit for companies: The threshold limit for companies for providing a tax audit report is Rs 10 crore (w.e.f. AY 2022-23) if the company meets the following conditions:
    • Cash receipts for sales, turnover, etc. do not exceed 5% of total turnover
    • Expenses made in cash do not exceed 5% of the total expenses of the firm

How to Save Corporate Tax?

In addition to the above deductions, here are some measures that can be taken in order to save corporate tax. These depend entirely on how the company's management devises their tax saving strategy. A corporation can save tax in the following three ways as well:

  1. Effective Management of Expenses:  Many businesses within the country operate with unorganised labour which may hinder proper record keeping. Hence it is vital to maintain detailed reports of overhead costs and wages paid out in order to claim deductions on labour and production expenses
  2. Equity Valuation:  While stock prices are generally valued at cost there are cases involving shorter shelf lives where it can also be valued at its Net Realizable Value or NRV which could prevent it from being overvalued and limit the taxable income from capital gains. This may only be applicable in certain cases where this value remains fairly steady as large fluctuations may be grounds for fraud.
  3. Making Use of Deductions: Deductions may be the most effective method of regulating taxable income and their proper management could prove to be vital for companies looking to save corporate tax.

It is important to strike a balance between the various available methods in order to save corporate tax such as deductions and tax rebates as well as the effective management of expenses. Fully understanding the situations that these measures are best suited to also goes a long way in maximising the gains of your corporation.

Conclusion

Effective corporate tax planning is vital for maximising profitability and ensuring compliance with tax laws. Companies can significantly reduce their tax liabilities by understanding applicable tax rates, managing expenses strategically, and leveraging permissible deductions. This approach preserves income as well as supports sustainable business growth and financial stability.

Glossary

  1. Corporate Tax: A tax levied on a company's net income after certain deductions.
  2. Minimum Alternate Tax (MAT): A tax ensuring companies with low taxable income can carry forward their credit income for 15 years.
  3. Surcharge: An extra tax on corporate income exceeding a specified limit of tax liability.
  4. Tax Deducted at Source (TDS): A tax that requires deduction before payments like salaries, rent, or contracts.
  5. Section 115BAA: A tax regime with a 22% tax rate, where companies undergo deductions like MAT credit and additional depreciation.
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FAQs

The effective tax rate for companies depends on the tax regime they choose and their income slab. After adding surcharge (where applicable) and Health & Education Cess at 4%, the overall payable tax becomes higher than the base rate. For example, under Section 115BAA, the base corporate tax rate is 22%, and the effective tax rate becomes approximately 25.17% after surcharge and cess, as per applicable provisions of the Income Tax Act.

Corporate tax is calculated on a company’s taxable income for the financial year. Taxable income is derived after deducting allowable business expenses, depreciation, exemptions, and applicable deductions from total revenue. The tax is then applied at the relevant corporate tax rate, and surcharge and cess are added wherever applicable, as per provisions of the Income Tax Act.

Corporate tax and income tax on companies refer to the same concept in India. Corporate tax is the income tax paid by companies on their business profits, as distinct from personal income tax payable by individual taxpayers.

If a company earns taxable profits after deductions, corporate tax is calculated on that amount based on the applicable tax regime. For example, if a company opts for the 22% concessional tax regime under Section 115BAA, tax is first calculated at 22% on taxable income, and then surcharge (if applicable) and 4% Health and Education Cess are added to arrive at the final tax payable.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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