Company Taxation

In India, all domestic companies are liable to tax on their global income, while foreign companies are liable to tax in India with respect to income received or deemed to be received in India or income which accrues or arises in India or income which is deemed to accrue or arise in India. The effective corporate tax rate (base rate + surcharge + cess) depends on the type of the company (domestic or foreign) and the quantum of its taxable income in the previous year. The year refers to the Tax Year (TY), which begins on 1 April and ends on 31 March. The rate of tax, surcharge, and cess could be changed by the Finance Act passed by the Indian government every year.

After the Finance Act, 2019 received its presidential assent, in view of economic circumstances, the government announced sweeping tax reforms through The Taxation Laws (Amendment) Act, 2019. The most important aspect of which was a significant reduction in tax rates to boost the Indian economy.

The key amendments as introduced by The Taxation Laws (Amendment) Act, 2019 are as follows:¹:

• 1. Introduction of Section 200 of Income Tax Act, 2025 (erstwhile section 115BAA of Income-tax Act, 1961): (applicable from TY 2019-20 onwards)
  • All domestic companies have an option to pay Income Tax at the rate of 22% (plus applicable surcharge and cess), provided the below-mentioned conditions are complied with. Such companies should not be avail of any exemptions/incentives under different provisions of Income tax. Therefore, the total income of such company shall be computed without:
    • Claiming any deduction especially available for units established in special economic zones under Section 144
    • Claiming additional depreciation under Section 33 and investment allowance
    • Claiming deduction under Section 48 for tea, coffee and rubber manufacturing companies
    • Claiming deduction towards deposits made towards site restoration fund under Section 49 by companies engaged in extraction or production of petroleum or natural gas or both in India
    • Claiming a deduction for expenditure made for scientific research under Section 45
    • Claiming a deduction for the capital expenditure incurred by any specified business under Section 46
    • Claiming a deduction for the expenditure incurred on an agriculture extension project or on a skill development project under Section 47
    • Claiming deduction under Chapter VIII except for deduction under Section 146 and Section 148
    • Claiming a set-off of any loss carried forward from earlier years, if such losses were incurred in respect of the aforementioned deductions.
  • Such companies will have to exercise this option to be taxed under Section 200 on or before the due date of filing Income Tax returns, i.e., usually 31 October. Once the company opts for Section 200 in a particular tax year, it cannot be withdrawn subsequently.
  • Section 206 of the Act relating to the Minimum Alternate Tax (MAT) states that the provisions of said section shall not apply to a person who has exercised the option referred to under the newly inserted Section 200.
  • Domestic companies opting for Section 200 will not be able to claim MAT credits for taxes paid under MAT during the tax holiday period. Companies would not be able to reduce their tax liabilities under Section 200 by claiming MAT credits. With effect from tax year 2026-27, Domestic companies opting for section 200, can claim deduction of accumulated MAT credits upto 25% of tax liability.
• 2. Introduction of Section 201 (applicable from FY 2019-20 onwards):
  • A domestic company will be entitled to the benefit of the low corporate tax rate (15% plus applicable surcharge and cess) if the domestic company has been incorporated and registered on or after 1 October 2019 and has commenced manufacturing on or before 31 March 2024. The company should be engaged in the business of manufacture or production of any article or thing, and research in relation to such article or thing. The company can also be engaged in the distribution of such articles or thing manufactured or produced by it. Such a company should satisfy the following conditions:
    • Not be formed by the splitting up and reconstruction of a business already in existence except in case of a business being re-established under Section 140;
    • Does not use any plant or machinery previously used for any purpose. However, the company can utilize the plant and machinery used outside India and used in India for the first time;
    • The company can use old plant and machinery if its value does not exceed 20% of the total value of the plant and machinery used by the company;
    • Does not use a building previously used as a hotel or a convention center. A ‘hotel’ means a hotel of two-star, three-star or four-star category as classified by the Central Government. ‘Convention center’ means a building of a prescribed area comprising of convention halls to be used for the purpose of holding conferences and seminars, being of such size and number, and having such other facilities and amenities, as may be prescribed.
  • The total income of such company shall be computed without:
    • Deduction under Section 144 for units in Special Economic Zones
    • Deduction for additional depreciation under Section 33
    • Deduction under Section 48 for tea, coffee and rubber manufacturing companies
    • Deduction towards deposits made towards site restoration fund under Section 49 by companies engaged in the extraction or production of petroleum or natural gas or both in India
    • Deduction for expenditure made for scientific research under Section 45
    • Deduction for the capital expenditure incurred by any specified business under Section 46
    • Deduction for the expenditure incurred on an agriculture extension project or on a skill development project under Section 47
    • Claiming deduction under Chapter VIIIexcept for deduction under Section 146 and Section 148
    • Set off of any loss carried forward from earlier years if such losses were incurred in respect of the aforementioned deductions
  • Such companies will have to exercise this option to be taxed under the Section 201 on or before the due date of filing Income Tax returns, i.e., usually 30 October of the tax year. Once the company opts for Section 205 in a particular financial year, it cannot be withdrawn subsequently.
  • Applicability of transfer pricing provisions
    • In a case where due to a close connection between the company and any other person, or for any other reason, the business between them is so arranged such that the company earns more than ordinary profits, the Assessing Officer may ignore the excess profits. The Assessing Officer will take only the number of profits reasonably deemed to be derived from the business.
    • In a case where the business transaction involves a specified domestic transaction referred to in Section 243, the profits of the transaction will be determined with regards to the arm’s length price.
  • Applicability of MAT provisions
    • a. Section 206 of the Act related to Minimum Alternate Tax (MAT) provides that the provisions of the said section shall not apply to a person who has exercised the option referred to under the newly inserted Section 201.
    • b. The domestic companies opting for Section 201 will not be able to claim MAT credits for taxes paid under MAT during the tax holiday period. The companies also would not be able to reduce their tax liabilities under Section 201 by claiming MAT credits.
  • Presumptive Taxation

    The law also provides a presumptive taxation regime to resident Individual, HUF and partnership firm (excluding LLP) wherein a certain percentage of the turnover is claimed as deemed total income from tax purposes.

    • a. In case of business (other than agency and commission business), 8% or more of the turnover can be claimed as total income of the assessee. Furthermore, a reduced rate of 6% is applicable if the receipts/turnover through electronic means. The said provisions are applicable if the turnover does not exceed INR 20 million.
      
      Furthermore, if the transactions (both receipts and payments) in cash do not exceed 5% of the total transaction value, the provisions of presumptive taxation are available for turnover up to INR 30 million.
    • b. b. In case of profession, 50% or more of the turnover can be claimed as total income of the assessee. The said provisions are applicable if the turnover does not exceed INR 5 million.
      
      Furthermore, if the transactions (both receipts and payments) in cash do not exceed 5% of the total transaction value, the provisions of presumptive taxation are available for turnover up to INR 7.5 million.

The Finance Act 2026 has not altered the tax rates applicable for corporates, and the same remains in line with rates announced in Finance Act 2025.

TThe tax rate applicable for TY 2026-27 in case of domestic companies not opting for the beneficial regime and having a turnover or gross receipts in FY 2024-25 not exceeding INR 4 billion is 25% of the total income plus the applicable surcharge and health and education cess. For all other domestic companies (not opting for the beneficial regime and have turnover exceeding INR 4 billion), the base tax rate shall continue to be 30% plus applicable surcharges and the health and education cess.

Furthermore, up till FY 2017-18, Education Cess at the rate of 2% and Secondary and Higher Education Cess at the rate of 1% was payable on the base tax rate and surcharge. The Finance Act, 2018, has discontinued the same from FY 2018-19, and a new cess, namely the health and education cess at the rate of 4% has been introduced.

The corporate tax rates applicable for TY 2026-27 are outlined below:

*Domestic companies which have been incorporated and registered on or after 1 October 2019 and have commenced manufacturing on or before 31 March 2024.

Minimum Alternate Tax (MAT) (also known as book profits tax)

The Income Tax Act, 2025 (ITA), also provides for tax on ‘book profits in case the tax on the company’s book profit (post certain adjustments) is greater than the tax on income computed as per the standard provisions of the ITA. This is commonly known as MAT, which is charged at a rate of 18.5% on book profits plus appli-cable surcharge and 4% Health and education cess on the tax and surcharge. The limits for the applicability of the surcharge are the same as mentioned in the table above.

The Taxation Laws (Amendment) Act, 2019, has reduced the MAT rate from 18.5% to 15%. The Finance Act, 2026 further reduced the MAT rate from 15% to 14%.

Furthermore, MAT provisions will not be applicable for domestic companies opting for beneficial tax regime (i.e., domes-tic companies opting for 22% base tax rate or new manufacturing companies opting for 15% base tax rate).

Credit for MAT paid can be carried forward and claimed against standard corporate tax payments arising in the future, subject to a limitation period of 15 years instead of 10 years as provided earlier. However, the Finance Act, 2026 restricts the carry-forward of MAT credit from Tax Year 2026–27 onwards. Accordingly, taxes paid under the MAT provisions will constitute the final tax liability, and no MAT credit will be allowed to be carried forward to subsequent years.However, as per The Taxation Laws (Amendment) Act, 2019, credit for MAT is not available for companies opting for beneficial tax regime. The Act expressly amends the MAT Credit provisions to deny MAT Credit to any company which opts for the reduced tax rate. However, from tax year 2026-27, where the Company opts for beneficial tax regime, it can utilize the accumulated MAT credit against its tax liability subject to limit of 25% of tax liability.

In the case of income earned by Foreign Institutional Investors/Foreign Portfolio Investors (FIIs/ FPIs) and foreign companies from various sources, such as capital gains, interest, royalty, and fees for technical services, MAT provisions will not be applicable from FY 2015–16 onwards. Also, MAT shall not apply to foreign companies not having any Permanent Establishment (PE) in India or which are not required to be registered under the Companies Act in India.

Apart from the above, foreign companies engaged in the business of shipping, exploration of mineral oils, operation of aircraft, and civil construction concerning turnkey power projects can opt for presumptive taxation. In such a case, taxable income is first computed at a certain fixed percentage of the gross receipts, and then the above- referred corporate tax, surcharge, and health and education cess shall be applicable.

Abolishment of Dividend Distribution Tax (DDT)

The Finance Act, 2020, states that the provisions of Section 115-O of the Act relating to levy of DDT on companies declaring dividends would be applicable only to those dividends that are declared, distributed or paid on or before 31 March 2020. This means that companies declaring or distributing dividends after 1 April 2020 no longer have to pay DDT. The key impacts of this amendment are as follows:

• Any dividends received on or after 1 April 2020 will no longer be exempt in the hands of the shareholders, and the same would be taxable as per the rates applicable to the recipient
• The company shall be liable to deduct Tax Deducted at Source (TDS) @ 10% while making a payment of dividend to a shareholder being a person residing in India, as per Section 194, if the amount of dividend exceeds INR 10,000
• The company shall be liable to deduct TDS @ 20% while making payment of dividends to a shareholder being a person non-resident in India plus surcharge and cess as applicable. However, provisions of the tax treaty with the country of residence would apply if it were more beneficial
• The Finance Act, 2020 has also clarified that dividend income, which is subject to DDT and received after 1 April 2020, shall be exempt in the hands of the shareholder/ unitholder
• Furthermore, Finance Act 2022 has specified that dividend received from a foreign company is taxable as per rates applicable to the recipient company and not at a flat rate of 15%
• No cascading effect will occur on the taxation of dividends by providing deduction of dividends received by one domestic company from another domestic company, or foreign company, or from a business trust to the extent of dividend distributed or actual dividend received, whichever is lower

Abolishment of Buy-back Tax (BBT) :

While the Finance Act (No. 2), 2019 extended the scope of Buyback Tax as per Section 115QA to listed companies as well, Finance Act, 2024 has states that provisions of section 115QA shall no longer be applicable from 1 October 2024. This means that companies buying back shares will no longer be required to withhold tax on buy-back. The key impact of this amendment is:

• The receipts from such buy-back will be considered as deemed dividend in the hands of the recipient without allowing any deduction for expenses.
• The cost of such shares will be considered as capital loss and shall be allowed to be set off against subsequent gains.

The Finance Act, 2026 has amended the tax treatment of gains arising on the buyback of shares. With effect from Tax Year 2026-27, the consideration received on a buyback will be taxed as capital gains in the hands of the shareholders, replacing the earlier dividend-based taxation regime. Further, an additional tax has been introduced for promoter shareholders under Section 69(2) of the ITA. Consequently, the effective tax rate on buyback gains for promoter shareholders is 22% in the case of a domestic company and 30% for other promoters.

• 1.The Taxation Laws (Amendment) Act, 2019, Income Tax Department, https://www. incometaxindia.gov.in/Pages/acts/taxation-laws-amendment-act-2019.aspx.