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Whether you find yourself sitting across the table from your accountant, contemplating an expansion perhaps to another state, or taking diversification measures, corporate tax rate in India is a key component of your intermediate plans. While the government in 2026 has done a lot to streamline the interpretation of taxes at various levels, questions—specifically on rates and surcharges—remain, especially when it’s about how all these calculations come together.
As much as can be said about taxes in India, planning early—reading ahead—plays a significant role in the amount of tax owed at the end of the day. For instance, a foreign company operating through a branch in India faces an effective tax rate of around 38%, while a wholly owned Indian subsidiary can bring that figure down to 25.17% or even lower.
That difference, on any meaningful quantum of profits, is not marginal. This blog covers the rates, the surcharge mechanics, the concessional regimes, and how the actual calculation works, so the numbers make sense before any company incorporation in India decision is made.
Domestic companies are taxed on their global income. The base rate depends on turnover in the relevant preceding financial year:
These base rates do not tell the full story. Two more components sit on top: surcharge and cess.
Surcharge applies as follows:
| Total Income | Surcharge Rate |
|---|---|
| Up to INR 1 crore | Nil |
| INR 1 crore to INR 10 crore | 7% |
| Above INR 10 crore | 12% |
After surcharge, a Health and Education Cess of 4% is applied on the combined tax and surcharge figure. This is mandated under the Finance Act and is not negotiable regardless of the regime chosen.
Marginal relief applies at each threshold to prevent a situation where crossing INR 1 crore in income results in a tax jump that exceeds the incremental income itself. The additional tax liability is capped at the amount by which income exceeds the threshold.
At the top end, a domestic company with income above INR 10 crore on the 30% base rate faces an effective rate of approximately 34.94%. For companies on the 25% base rate at the same income level, the effective rate works out to around 29.12%.
This is where the corporate income tax rate in India becomes genuinely useful for foreign businesses making incorporation decisions.
Section 115BAA allows any domestic company, regardless of sector or turnover, to elect a flat 22% base rate. The trade-off is forgoing certain deductions and exemptions, including most deductions under Chapter VI-A and those under Section 10AA. The surcharge under this regime is fixed at 10% irrespective of income level, which actually benefits higher-income companies that would otherwise face 12%. Add 4% cess and the effective rate is 25.17%. MAT does not apply.
Section 115BAB goes further. New domestic manufacturing companies incorporated on or after 1 October 2019 and which commenced production before 31 March 2024 can opt for a base rate of 15%. With the same 10% surcharge and 4% cess, the effective rate is 17.16%. For a foreign investor setting up a greenfield manufacturing operation in India, this is among the most competitive rates available in any major economy.
Both elections are irrevocable and must be made by filing Form 10-IC before the return filing deadline. No partial application is possible. The decision requires upfront modelling of which deductions would be forgone and whether the rate saving justifies that trade-off.
Section 115BA offers 25% for certain domestic companies with specific conditions, though it is less commonly relevant for new foreign-backed subsidiaries.
Foreign companies, those set up outside India but generating income from within the country, come under a base tax rate of 35%. The surcharge is where the treatment starts to differ from domestic companies:
2% where total income falls between INR 1 crore and INR 10 croreI have
Add 4% cess on top and the effective rates work out to roughly 36.4% and 38.22% in each case.
MAT at 15% of book profits remains in play unless the company opts for presumptive taxation under Sections 44B or 44BB. These are not broadly applicable provisions though. They are restricted to shipping companies and businesses engaged in mineral oil exploration.
On the treaty side, India’s DTAA network spans over 90 countries. For businesses that qualify, these agreements can bring withholding tax rates on dividends, royalties, and fees for technical services well below domestic statutory levels. Any structure involving regular cross-border payments should be reviewed against applicable treaty provisions before being finalised.
For most foreign businesses weighing their options, the tax differential between a branch and a local subsidiary is not a small rounding difference. The gap in effective rates generally runs between 12 and 13 percentage points. Translated into rupees on INR 10 crore of annual profit, that is INR 1.2 to INR 1.3 crore, and this is without counting any sector-level incentives that might apply.
One thing that trips up a lot of people is treating surcharge as a percentage of income. It is not. Surcharge is calculated on the base tax liability, and cess comes in after that, applied on the combined tax and surcharge figure.
To see how this plays out, consider a domestic company with INR 12 crore in taxable income, turnover under INR 400 crore, on the standard 25% regime:
Now the same income under Section 115BAA at 22%:
The saving on this example alone is approximately INR 47.62 lakh. As the profit base grows, so does the gap, which is why the choice of regime tends to move from a filing detail to a decision that deserves proper financial modelling before incorporation.
The base rates and concessional regimes are the foundation, but there are sector-level provisions that materially improve the tax position for businesses in certain industries.
Units in Special Economic Zones claim a 100% deduction on export income for the first five years of operations under Section 10AA, followed by a 50% deduction for the next five years, and then 50% on reinvested profits for the five years after that. Union Budget 2026-27 has proposed a post-holiday effective rate of 15% for units in International Financial Services Centres, reduced from the earlier 22%. Data centre operations routing qualifying global service income through local entities may be eligible for exemptions extending to 2047.
Eligible startups under Section 80-IAC can claim a 100% profit deduction for any three consecutive years within the first ten years of incorporation, provided they meet the DPIIT certification requirements.
For businesses in manufacturing, Section 115BAB remains the most direct and significant incentive available. There is no equivalent in most comparable economies at 17.16% effective rate for an incorporated entity with access to treaty networks and a skilled labour base.
Choosing the right tax regime is step one. Staying compliant through the year is what keeps that advantage intact. The penalties for getting it wrong are not trivial. In cases involving concealment, liability can go up to 300% of the tax evaded.
Here is what the compliance calendar looks like for most companies:
The corporate tax rate in India is not a single number. It is a range, and where a business sits within that range depends almost entirely on decisions made before operations begin, specifically the choice of entity type, applicable regime, and sector. A foreign company that incorporates a domestic subsidiary and elects Section 115BAA is looking at an effective rate of 25.17%. The same business operating as a branch pays around 38%. That gap is a policy signal, and it is a deliberate one.
For foreign businesses at the planning stage, the right approach is to model the actual numbers against projected income, accounting for deductions that would be forgone under concessional regimes, transfer pricing obligations, and applicable treaty provisions. The tax arithmetic in India is predictable and well-documented through the Income Tax Department’s official framework. What it rewards is preparation.
