Corporate Tax in India: A Complete Guide for Businesses

Corporate tax in India is levied on the income earned by both domestic and foreign companies. It is a key element of the country’s tax infrastructure that affects every small or large business. There are also different types of taxes levied on corporations in India, direct taxes and indirect taxes.

Direct taxes are imposed on the profits received by different corporations within a fiscal year. Indirect tax, on the other hand, is imposed on goods and services. Failing to comply with corporate tax regulations leads to legal penalties and makes smooth financial operations difficult for businesses.

This blog covers the meaning of corporate tax in India, tax rates, applicability of tax, exemptions, and filing processes. It also breaks down the recent updates of corporate tax in India.

Understanding Corporate Tax in India

A government needs a substantial amount of money for public spending and economic growth. However, it doesn’t have a direct way of getting that money. This is why the Indian government imposes corporate tax on businesses to generate revenue.

What is Corporate Tax?

Corporate tax definitions refer to the tax that businesses pay on their profits. It is charged the same way as personal tax, but instead of individuals, it is levied on corporations or businesses. It is a direct tax charged on the net profits of corporations located in India.

The government of India collects corporate tax from businesses to generate revenue. The government then uses this revenue for public services, infrastructure development and economic growth.

Corporate Tax Application to Domestic and Foreign Companies

It is compulsory for both domestic and foreign companies working in India to pay corporate tax. The government of India imposes the tax under the Income Tax Act 1961. The act allows making changes from time to time according to government policies and economic conditions.

• Domestic companies in India: Businesses registered in India are required to pay corporate tax in India on their income.
• Foreign Companies: These are companies that are operating from outside India but earn income from Indian operations. They are liable to pay the corporate tax on income earned in India.

Current Corporate Tax Rates for Domestic and Foreign Companies 

Understanding corporate tax rates in India is important for businesses of all sizes. The government has structured corporate tax to encourage investment, economic growth, and compliance. You must also know that tax rates change based on the company type, turnover, and tax regime.

Income	Corporate Income Tax Rate (%)
	Turnover Not Exceeding ₹4 Billion		Domestic Companies		Foreign Companies
	Basic	Effective	Basic	Effective	Basic	Effective
Less than ₹10 million	25	26.00	30	31.20	35	36.40
More than ₹10 million but less than ₹100 million	25	27.82	30	33.38	35	37.13
More than ₹100 million	25	29.12	30	34.94	35	38.22

Corporate Tax Rates for Domestic Companies

The domestic company tax rate is calculated based on turnover. It also depends on whether a company avails of concessional tax regimes.

Section	Conditions	Tax Rate
Companies with turnover up to ₹400 crore in the previous year	Standard tax rate	25%
Companies with turnover exceeding ₹400 crore	Standard tax rate	30%
Section 115BA	Incorporated on or after March 1, 2016, engaged in manufacturing, and does not claim specified exemptions	25%
Section 115BAA	Companies opting out of exemptions, deductions, and incentives	22%
Section 115BAB	Manufacturing companies incorporated on or after October 1, 2019, and commencing production before March 31, 2024	15%
Other domestic companies	Companies that do not fall under the above categories	30%

Additional Components:

• Surcharge
  • 7% for income above ₹1 crore and up to ₹10 crore
  • 12% for income exceeding ₹10 crore
  • For companies under Section 115BAA and 115BAB, a flat 10% surcharge applies.
• Health and Education Cess: 4% on total tax and surcharge.
• Minimum Alternate Tax (MAT): 15% of book profit applies to companies that do not fall under Sections 115BAA and 115BAB.

Corporate Tax Rates for Foreign Companies

A foreign company tax rate is applied based on the type of income earned within India.

Nature of Income	Tax Rate
Royalties or fees for technical services under agreements before April 1, 1976	50%
All other income earned in India	40%

Additional Components:

• Surcharge:
  • 2% for income exceeding ₹1 crore and up to ₹10 crore
  • 5% for income exceeding ₹10 crore
• Health and Education Cess: 4% on the total of tax and surcharge.

Latest Corporate Tax Update – Budget 2025

The government made the decision to alter some of the regulations governing the tax obligations of businesses in the Union Budget 2025. They provided some tax advantages to support company expansion and made it simpler for corporations to comply with the regulations.

This implies that small businesses can retain a larger portion of their earnings and utilize them for additional purposes, such as expanding their workforce or purchasing new machinery. The objective is to improve corporate success and support economic expansion.

Other than this, there have been no major changes in the corporate tax system. The Union Budget 2024 proposed reducing the foreign company tax rate from 40% to 35% to attract global investments, which still continues. Staying updated on corporate tax rates in India helps businesses plan tax-efficient strategies while ensuring compliance with regulations.

Who Needs to Pay Corporate Tax?

All businesses in India generating income within the country are under corporate tax applicability in India. It does not matter whether a business is a registered firm in India or a foreign entity getting revenue from Indian sources. The business must follow Business Tax India regulations.

1. Domestic Companies

Domestic companies are created in India under the Companies Act, 2013. In such a case, these companies are taxed on their total income. It means that they have to pay corporate tax in India also on the income earned in India as well as in any other country.

The tax rates differ by the amount of turnover and whether the company chooses to go for concessional tax regimes of Section 115BAA or Section 115BAB.

2. Foreign Companies

A foreign company is described as any company which earns revenue from India but has its incorporation outside India. These companies get taxed only on the income earned within India. It includes business operation revenue, capital gains, royalties and technical service fees.

Exemptions for foreign companies are high because the foreign company tax rate is typically higher than that of domestic firms. However, Budget 2024 proposed a reduction in the foreign company tax rate from 40% to 35% to spur foreign investment.

3. Startups and Small Businesses

Corporate tax in India applies to startups and small businesses, as well. However, they also come under tax benefits. Under Section 80IAC, an eligible startup can enjoy a 100% tax exemption. Small businesses with a turnover of up to ₹400 crore benefit from a lower corporate tax rate of 25%.

Tax Deductions and Exemptions for Businesses in India

The Income Tax Act of 1961 allows the corporate tax exemptions in India. It helps businesses in India to reduce tax liability. These provisions also reduce corporate tax outflows at a minimum cost to corporations. In return, this promotes investment, innovation, and corporate social responsibility.

1. Section 80G – Deductions on Donations

Section 80G allows companies to deduct their donations made to charitable organizations, relief funds, or government-backed social initiatives. The amount can be deducted as 50% or 100% of the donation amount, depending on the type of organization. It, however, only accepts donations made via non-cash modes (such as bank transfers, cheques, and digital payments).

2. Depreciation Deductions

Depreciation allows businesses to record the decline in asset value during an accounting period so that taxable income is lower. The Income Tax Act allows:

• Depreciation is normally approved under Section 32 for tangible and intangible assets.
• Additional depreciation of 20% for new machinery or plants used in manufacturing or power generation.
• Accelerated depreciation depends on industries like renewable energy and infrastructure.

The deduction under corporate tax exemptions in India helps businesses recover capital expenditure faster.

3. Research and Development (R&D) Incentives

For carrying out scientific research and development, the business engaged in such research and development is entitled to claim a deduction under Section 35.

• 100% deduction for in-house R&D expenses.
• Specific scientific research organizations may be subject to weighted deductions up to 150% before 2020.
• Also, capital expenditure on scientific research is fully deductible (including land purchases excepted).

There are R&D incentives that motivate businesses to invest in the advancement of technology and advancing the essence of innovation.

4. Startup Exemptions Under Section 80-IAC

Profits of startups recognized under the Startup India initiative get 100% tax exemption on the profits for the next three years out of the first 10 years of incorporation. To qualify:

• It has to be registered as a private limited company or LLP.
• It must be engaged in innovation, development, or improvement of products/ processes/ services.
• Its turnover must not exceed ₹100 crore in any of the eligible years.

How is Taxable Income Calculated for Corporate Tax?

In calculating corporate tax, the first step is to determine the taxable income corporate tax is charged. Also, taxable income for a company is derived from a mixture of revenues, with allowance for allowable deductions and claims.

1. Components of Taxable Income

• Taxable income includes:
• Also known as revenue from operations or bringing in revenue.
• Interest earned, dividend received, capital gains, rental income, foreign earnings (for domestic companies).
• Exceptional gains – Profits from the sale of assets or business mergers.

2. Adjustments for Deductions and Expenses

Thinking of corporate tax, companies can deduct the following to arrive at taxable income.

• Business expenses – Rent, salaries, administrative costs, and raw materials.
• As per Section 32, depreciation reduces taxable income.
• Section 35 – Allowance is provided for research expenditures.
• Interest on business loans — Interest payments on business loans are deductible.
• Deductions – Section 80IAC (for start-ups), Section 80G(q) on donations to certain charitable funds, and special rates of tax deduction on export income.

3. Formula for Corporate Tax Calculation

The following simplified formula helps in determining taxable income corporate tax:

Taxable Income = (Total Revenue+Other Income)−(Allowable Deductions+Exemptions)

After determining taxable income, companies apply the applicable corporate tax rates to compute their final tax liability.

Step-by-Step Guide to Filing Corporate Tax Returns

All corporate enterprises operating in India need to fulfill their obligation to file their corporate tax returns. Every company needs to provide accurate financial data promptly so they can escape penalties. The following document provides comprehensive directions for business entities when filing corporate tax returns in India.

Step 1: Collect Financial Statements and Calculate Taxable Income

Organizations need to start corporate tax filing by assembling all financial records consisting of profit and loss statements, balance sheets, cash flow statements and records for other income sources.

• Profit and Loss Statement
• Balance Sheet
• Cash Flow Statement
• Records of other income (interest, dividends, capital gains)

Deductions and exemptions that conform to the Income Tax Act must be used to compute the taxable income.

Step 2: Apply Deductions and Exemptions

A business must include the following components before computing its final tax liability.

• Depreciation deductions (Section 32)
• R&D incentives (Section 35)
• Startup tax benefits (Section 80-IAC)
• Donations to charitable institutions (Section 80G)

The net taxable income calculation follows tax deduction completion for correct corporate tax rate application.

Step 3: E-filing Portal of the Income Tax Department to submit tax returns

Businesses need to submit corporate tax returns through the official online platform of the Income Tax e-filing portal accessible at www.incometax.gov.in. Follow these steps:

• The company must access the portal with both its PAN and password combination.
• Choose the appropriate tax return form, which most organizations need to select ITR-6.
• Complete financial sections and tax calculations followed by deducted items.
• Businesses must upload all required documents to the filing system while adding audited financial records if providing these statements is required.
• Validate and submit the return.

The company should make payments for all remaining tax dues during this step.

Step 4: Pay Any Outstanding Tax Liability

You can use any of the following methods to pay the outstanding tax:

• Net Banking
• Debit/Credit Cards
• Authorized Bank Branches

Step 5: Verify the Tax Return and Keep Acknowledgment

• Aadhaar OTP (for authorized signatories)
• Businesses can authenticate the e-payment system through Net Banking EVC (Electronic Verification Code).
• A signed tax document must be sent by post to the Central Public Relations (CPC) in Bengaluru.

After verification vendors can download the ITR-V Acknowledgment document as confirmation of their tax filing process.

Corporate Tax Filing Deadlines in India

Here are the key deadlines for corporate tax filling in India:

• Business entities filing without audit requirements must submit their taxes by July 31.
• Companies requiring an audit according to the Income Tax Act must file their tax returns by October 31.
• Organizations dealing with international transactions that must submit transfer pricing reports need to file their tax documents before November 30.

Latest Changes and Updates on Corporate Tax

Every Indian business needs to follow the latest corporate tax regulations for both regulatory adherence and tax efficiency optimization. The recent tax legislation brought pivotal changes to rates as well as policies.

Reduction in Corporate Tax Rate for Foreign Companies

Foreign companies operating in India will see their corporate income tax rate decrease from 40% to 35% starting from April 1, 2024, under provisions added to the Finance Act of 2024.

Abolition of Angel Tax

Startups gained a major boost after the Finance Act of 2024 eliminated the angel tax since it now allows them to receive investments without facing additional taxation.

Increased Tax Rate on Royalty and Technical Services Fees

Effective April 1, 2023, the base tax rate for royalty and fees for technical services (FTS) under the Income-tax Act, 1961, increased from 10% to 20%. Under applicable tax treaties non-resident entities need to fulfill particular conditions to access favorable tax treatment.

Concessional Tax Rates for Domestic Manufacturing Companies

New domestic manufacturing businesses benefit from government-specified tax provisions set at 15%, which includes surcharge and cess costs. New firms that began operations on or after October 1, 2019, and start manufacturing operations by March 31, 2024, qualify for this tax rate as long as they reject specified tax exemptions and industry incentives. 

India adopts these new corporate tax policies to establish a supportive business climate for investment and economic expansion. Organizations need to maintain awareness about changing tax regulations to deal with the transforming tax framework successfully.

Frequently Asked Questions on Corporate Tax

Stay Compliant with Expert Corporate Tax Filing Assistance

Corporate tax may seem like one of the hardest things in the world, but it doesn’t have to be. It is indeed difficult, but with little guidance, you can support your business’s financial stability. Filling the tax on time helps you minimize penalties and enhance deductions which results in higher profit.

As a company, we are all aware of the challenges associated with corporate tax and filing it. This is why FlexiLoans has developed personalized financial solutions to sustain your business operation. Our business loan system provides easy financing for managing your tax obligations.

Tax season must not become a cause of stress for you. Get the required support to keep your finances in check. Apply Now for flexible business financing solutions!