Corporate tax is the tax that companies pay on their profits. If you’re running a business in India, understanding corporate tax is essential. Let’s break it down in simple terms.
What is Corporate Tax?
Corporate tax is a tax imposed on the net income or profit of companies. In India, both domestic and foreign companies are liable to pay corporate tax on their earnings.
Corporate Tax Rates in India for FY 2025-26 (AY 2026-27)
1. Domestic Companies
- Companies with Turnover up to ₹400 crore:
- Tax Rate: 25%
- Surcharge:
- 7% if income exceeds ₹1 crore but does not exceed ₹10 crore
- 12% if income exceeds ₹10 crore
- Health and Education Cess: 4% on tax plus surcharge
- Companies with Turnover above ₹400 crore:
- Tax Rate: 30%
- Surcharge:
- 7% if income exceeds ₹1 crore but does not exceed ₹10 crore
- 12% if income exceeds ₹10 crore
- Health and Education Cess: 4% on tax plus surcharge
2. Optional Tax Regimes for Domestic Companies
- Section 115BAA:
- Tax Rate: 22%
- Surcharge: 10%
- Health and Education Cess: 4%
- Note: Companies opting for this regime cannot avail certain exemptions and deductions.
- Section 115BAB (for new manufacturing companies):
- Tax Rate: 15%
- Surcharge: 10%
- Health and Education Cess: 4%
- Note: Applicable to companies incorporated on or after October 1, 2019, and commencing production before March 31, 2023.
3. Foreign Companies
- Tax Rate: 40%
- Surcharge:
- 2% if income exceeds ₹1 crore but does not exceed ₹10 crore
- 5% if income exceeds ₹10 crore
- Health and Education Cess: 4% on tax plus surcharge
Summary Table
| Company Type | Tax Rate | Surcharge | Health & Education Cess |
|---|---|---|---|
| Domestic (Turnover ≤ ₹400 crore) | 25% | 7% / 12% | 4% |
| Domestic (Turnover > ₹400 crore) | 30% | 7% / 12% | 4% |
| Domestic (Section 115BAA) | 22% | 10% | 4% |
| Domestic (Section 115BAB) | 15% | 10% | 4% |
| Foreign Companies | 40% | 2% / 5% | 4% |
Minimum Alternate Tax (MAT)
If a company’s tax liability is less than 15% of its book profits, it must pay MAT at 15% of the book profits. However, companies opting for taxation under Sections 115BAA or 115BAB are exempt from MAT.
Key Points to Remember
- Corporate tax is levied on a company’s net income.
- Tax rates vary based on company type and turnover.
- Optional tax regimes offer lower rates but come with conditions.
- Foreign companies are taxed at a higher rate compared to domestic companies.
- Always consider surcharges and cess when calculating total tax liability.
Understanding corporate tax rates helps in effective financial planning and compliance. Always consult with a tax professional to choose the most beneficial tax regime for your company.
