Corporate taxation in India is designed to tax the profits of businesses operating within its borders. Governed by the Income Tax Act, 1961, this system impacts both domestic and foreign companies, with tax rates, deductions and compliance requirements varying based on company type and income. This article provides an in-depth exploration of corporate taxation in India for 2025, covering tax rates, recent updates, deductions and compliance, ensuring businesses and stakeholders can navigate the system effectively.
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What is Corporate Taxation in India?
The Corporate Income Tax (CIT) is levied on the profits earned by companies, distinct from personal income tax. It targets net income or profits over a specific period, which encompasses various income sources such as business operations, capital gains, rental income and other sources like dividends, interest, and royalties.
The Income Tax Act defines a domestic company as an Indian company or any company that has made arrangements for declaring and paying dividends within India.
A foreign company, on the other hand, is one not registered under the Companies Act of India, with control and management located outside the country.
Resident companies are taxed on their worldwide income, while non-residents are taxed only on income received, accrued, or arising in India.
Tax Rates for Domestic Companies for 2025
For the assessment year 2025-26, domestic companies face a tiered tax structure with options for reduced rates under specific conditions:
General Rate: 30%, applicable to companies not opting for special tax regimes. This rate is subject to additional surcharges and a mandatory 4% health and education cess.
Reduced Rates:
Section 115BA: 25% for companies with turnover or gross receipts not exceeding ₹400 crores in FY 2020-21. This provision supports smaller enterprises by offering a lower tax burden.
Section 115BAA: 22% (plus a 10% surcharge and 4% cess) for existing domestic companies, provided they forgo certain deductions, such as Special Economic Zone (SEZ) tax holidays and accelerated depreciation. Introduced in 2019/20, this option exempts companies from Minimum Alternate Tax (MAT) and MAT credit.
Section 115BAB: 15% (plus a 10% surcharge and 4% cess) for new domestic companies incorporated after October 1, 2019, engaged in manufacturing or electricity generation, with production starting by March 31, 2024. Conditions include not using previously used plant or machinery and avoiding non-manufacturing activities like software development.
Surcharge Rates for Domestic Companies
Surcharges are additional levies based on income levels:
7% if total income exceeds ₹1 crore but is less than or equal to ₹10 crore.
12% if total income exceeds ₹10 crore.
For companies opting for Section 115BAA or 115BAB, a flat 10% surcharge applies, regardless of income level.
Health and Education Cess
A uniform 4% cess is applied on the income tax calculated, including any applicable surcharge, to fund health and education initiatives.
Minimum Alternate Tax (MAT)
The Minimum Alternate Tax (MAT) ensures that companies with significant book profits pay a minimum tax, even if their normal tax liability is low. MAT is levied at 15% of adjusted book profits if the normal tax is less than 15%. Key details include:
Companies opting for Section 115BAA or 115BAB are exempt from MAT, providing relief for those choosing lower tax rates.
Units in International Financial Services Centres (IFSCs) deriving income solely in convertible foreign exchange are taxed at a special MAT rate of 9% (plus cess and surcharge).
MAT credit can be carried forward for 15 years, excluding foreign tax credit differences, offering flexibility in tax planning.
Learn about the Principles of Corporate Governance.
Deductions and Exemptions
Companies can reduce their taxable income through various deductions under Chapter VI-A of the Income Tax Act, subject to eligibility:
Section 80G: Deductions for donations to charitable institutions, at 100% or 50% of the donated amount, with a cash limit of ₹2,000.
Section 80GGA: Deductions for donations to scientific research or rural development, with a cash limit of ₹2,000, but not applicable if income includes business profits.
Section 80GGB: Full deduction for contributions to political parties or electoral trusts, applicable only for non-cash contributions.
Section 80IA: 100% profit deduction for 10 years for infrastructure, industrial parks, and power undertakings, available to Indian companies.
Section 80IAB: 100% profit deduction for 10 years for SEZ development, effective for projects started before April 1, 2017.
Section 80IAC: 100% profit deduction for 3 years out of 10 for eligible start-ups.
Section 80IB: 100% or 25% profit deduction for specified industrial undertakings, depending on conditions.
Section 80IBA: 100% profit deduction for housing projects meeting specific criteria.
Section 80IC: 100% profit deduction for the first 5 assessment years, followed by 25% or 30% for the next 5, for undertakings in specified states.
Section 80IE: 100% profit deduction for 10 assessment years for undertakings in North-Eastern states.
Section 80JJA: 100% profit deduction for 5 assessment years for biodegradable waste processing.
Section 80JJAA: 30% deduction of additional employee cost for 3 years, for assessees under Section 44AB.
Section 80LA: 100% or 50% deduction of specified income for 5 or 10 assessment years for offshore banking or IFSC units.
Section 80M: Deduction for inter-corporate dividends, provided they are distributed within one month before the ITR due date.
Section 80PA: 100% profit deduction for producer companies with turnover less than ₹100 crores, effective from AY 2019-20 to 2025-26.
Note that companies opting for Section 115BAA or 115BAB cannot claim most of these deductions, except for Sections 80JJAA and 80M, reflecting a trade-off for lower tax rates.
Also, Learn about Deductions under Section 80C of Income Tax Act, 1961.
Filing Requirements and Compliance
Compliance with corporate tax regulations is essential along with specific deadlines and forms in order to ensure transparency and accountability:
1. Due Date for Filing Income Tax Return: Generally, returns must be filed by October 30 each year. Extensions may apply in exceptional cases, like November 30, 2020 for FY 2019-20 due to the pandemic.
2. Forms:
ITR-6: Used by all companies except those claiming deductions under Section 11.
ITR-7: For companies under Section 8 of the Companies Act, 2013.
Additional forms include Form 10-IC for opting into Section 115BAA, Form 10-ID for Section 115BAB, and Form 29B for MAT computation, each with specific filing deadlines.
3. Tax Audit: Mandatory for eligible companies, with audit reports due by September 30, extended to October 31, 2020, for FY 2019-20 in certain cases.
Enroll in Corporate Law Courses.
Recent Updates in Corporate Taxation in India for 2025
India’s corporate tax regime is dynamic, with recent changes reflecting efforts to boost competitiveness and attract investment and these updates highlight India’s commitment to balancing revenue generation with economic growth and global competitiveness:
Budget 2025 Update: Starting from the assessment year 2026-27, inland vessels registered under the Inland Vessels Act, 2021, can opt for the Tonnage Tax Scheme or remain under the normal corporate tax regime. This scheme, defined under Section 115V, aims to promote inland water transportation.
Equalization Levy Repeal: In 2025, the 2% levy on e-commerce platforms and 6% on digital advertising was repealed which simplified taxation for foreign digital service providers and enhancing India’s appeal to global businesses.
Global Minimum Tax Framework: India is exploring participation in the OECD’s Pillar Two framework, which sets a 15% minimum effective tax rate for large multinationals. This could impact subsidiaries benefiting from low-tax jurisdictions, aligning India with global tax standards.
Summary
Corporate taxation in India is a multifaceted system designed to balance revenue generation with incentives for business growth. With tax rates ranging from 15% to 35%, deductions for various activities and recent policy shifts like the Equalization Levy repeal, the system offers flexibility but requires careful compliance and businesses must understand the applicable rates, leverage eligible deductions and meet filing deadlines to optimize their tax strategy. By staying informed about updates like the Tonnage Tax Scheme and potential global minimum tax adoption, companies can navigate India’s tax landscape effectively, ensuring compliance and maximizing financial efficiency.
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Corporate Taxation in India: FAQs
Q1. What is the corporate tax in India?
Corporate tax in India is a tax on company profits, governed by the Income Tax Act, 1961. Rates vary from 15% to 30% for domestic companies and 35% for foreign companies, plus surcharges and a 4% cess.
Q2. What is 25% tax on a company?
The 25% tax rate applies to domestic companies with turnover or gross receipts ≤ ₹400 crores in FY 2020-21 under Section 115BA, subject to surcharges and a 4% cess.
Q3. Is corporate tax 22 or 25?
Corporate tax for domestic companies can be 22% (Section 115BAA, with conditions) or 25% (Section 115BA for turnover ≤ ₹400 crores). The general rate is 30%, while new manufacturing firms may get 15% under Section 115BAB.
Q4. What is the tax slab for a Pvt Ltd company in India?
For private limited companies (domestic), tax slabs for 2025-26 are: 30% (general), 25% (turnover ≤ ₹400 crores, Section 115BA), 22% (Section 115BAA), or 15% (new manufacturing, Section 115BAB), plus surcharges and 4% cess.
Q5. Who paid the highest corporate tax in India?
Data on the highest corporate taxpayer for 2025 is unavailable in the provided context. Historically, large conglomerates like Reliance Industries or public sector banks often lead, but specific rankings require current financial reports.
