For Foreign Companies
For Indian Companies
GIFT City
Taxation Services
Advisory & Regulatory
Accounting Services
Setting up a subsidiary in India creates a separate legal entity that is subject to Indian direct and indirect tax regimes, while offering a structured route for foreign investors to repatriate profits, protect intellectual property, and localise operations. The effective corporate tax options available to domestic subsidiaries, together with India’s network of double taxation treaties, make the subsidiary route tax-efficient for many models of global investment.
There has been further certainty and incentives extended to foreign investors under the Union Budget 2026. Some of these are safe harbour provisions for IT and IT-enabled services, faster implementation of the Advance Pricing Agreement (APA) process, and tax reliefs for infrastructure like data centres and cloud services. These factors impact the structural considerations and tax on foreign subsidiaries in India.
Domestic companies may opt for concessional regimes under the Income Tax Act. The principal options relevant to foreign parents are:
By contrast, foreign companies and branches operating in India are taxed under the non-resident company provisions; they are taxed at a flat rate of 35% as per official guidance of taxable income, plus applicable surcharge and cess, unless treaty provisions or specific sections provide otherwise. That differential is often a primary reason to prefer a locally incorporated subsidiary over a branch for long-term investments.
| Regime | Base rate | Typical surcharge | Health & education cess | Approx effective rate |
|---|---|---|---|---|
| Section 115BAA (domestic option) | 22% | 10% | 4% | ~25.17% (where applicable). |
| Section 115BAB (new manufacturing) | 15% | 10% | 4% | ~17.16%. |
| Normal domestic companies (standard) | 25–30% | 7–12% | 4% | ~26–29%. |
| Foreign company / branch | 35% (flat) | 2–5% (depending on income band) | 4% | ~36.4%+ (varies). |
Payments from an Indian subsidiary to overseas related parties attract withholding tax (TDS) under the Income-tax Act (Section 195 and related provisions). Typical positions under domestic law are:
Practical requirements to note for remittances include Form 15CA/CB filings for cross-border payments above specified thresholds and the necessity of supportive documentation.
Related-party transactions between a subsidiary and its foreign parent must be priced at arm’s length and documented under Indian transfer-pricing rules. Some Key compliance points include:
Minimum Alternate Tax (MAT) historically ensures a floor of tax on book profits for companies. Budget 2026 proposals include:
Careful modelling of MAT credit utilisation is essential when an investor evaluates switching an Indian subsidiary to a new tax regimes.
Goods and Services Tax (GST) registration and compliance are mandatory when a subsidiary’s turnover exceeds prescribed thresholds. Current central guidance indicates registration is required if aggregate turnover exceeds Rs. 20 lakh in normal states and Rs. 10 lakh in special category states for supply of services (there are separate thresholds for goods). SEZ and export supply treatments differ, and exporters generally rely on zero-rating or refund routes.
When structuring customer supply and resale arrangements for foreign groups, consider place of supply principles, reverse charge applicability for cross-border services, and e-invoicing / e-waybill requirements for logistics and high-volume taxpayers.
A subsidiary operating in a Special Economic Zone (SEZ) can benefit from income exemptions under Section 10AA, as long as the conditions and timelines specified for SEZ units are met. The incentives available in SEZs include a stepped tax holiday for export income and customs/duty exemptions for approved activities. The criteria for eligibility are specified on the official SEZ portal and the Income Tax Department website.
Budget 2026 introduced targeted incentives for data centres and cloud services: a tax holiday until 2047 is proposed for foreign companies that provide global cloud services by procuring data-centre services in India; resident entities providing data-centre services to related foreign parties are proposed to get a 15% safe-harbour on cost. These specific concessions are designed to attract hyperscale cloud and AI infrastructure to Indian soil.
IFSC and GIFT City policy extensions also offer profit-linked deductions and favourable tax treatments that subsidiaries with treasury, financing, or captive IT operations should evaluate. Official IFSC guidance and Finance Bill provisions detail the eligibility criteria and documentation.
Budget 2026 proposes taxpayer-friendly procedural reforms that affect subsidiaries:
Transfer pricing filings (Form 3CEB) require CA certification and must be integrated with the subsidiary’s audited financial statements. Ensure assignments to the reporting CA are completed early in the year to meet filing deadlines.
Practical structuring checklist for investors
A subsidiary incorporated locally continues to be an attractive platform for accessing the enormous Indian market, as well as for hosting regional organizations. Concessional corporate tax regimes, DTAA network expansion, along with the revised focus of Budget 2026’s emphasis on safe harbours, APA, and data centres. It presents a situation where tax-planning activity can lead to substantial reductions in the tax normalised cost, alongside lower dispute risk.
Again, this requires careful implementation, as ensuring overall compliance in withholding, transfer pricing documentation, Form 3CEB certification, and GST registration is not peripheral; it is essential to the day-to-day running of every subsidiary.
The results of early tax structure decisions will need to be reviewed considering the legislative text and notifications as they are released in Union Budget 2026. For any structure, certainty is key, and the accelerated APA and safe harbour solutions available in the Budget are useful risk reducers in international transfer pricing and withholding.
