Quick Answer
Under the Income-tax Act, 2025 (30 of 2025, assented 21 August 2025, commencing 1 April 2026), domestic companies are taxed at 30% default, 25% if turnover ≤ ₹400 crore, 22% under the Sec 115BAA equivalent concessional regime, or 15% under the Sec 115BAB equivalent for new manufacturing. Foreign companies pay 35%. MAT at 15% of book profit, AMT at 18.5% for LLPs and specified non-corporate taxpayers. DDT is abolished — dividends are taxed in shareholder hands. This guide covers rates, effective tax, surcharge and cess, MAT/AMT computation, and switching strategy for tax year 2026-27.
Last Updated: 15 April 2026 | Applicable From: Tax Year 2026-27 (1 April 2026 onwards) | Reference: Income-tax Act, 2025 (30 of 2025), as amended by Finance Act, 2026
Corporate taxation in India underwent its most significant structural change in two decades with the Taxation Laws (Amendment) Act, 2019 — when the Sec 115BAA and 115BAB concessional regimes cut headline rates to 22% and 15% respectively. That architecture is now fully consolidated within the Income-tax Act, 2025 (Act 30 of 2025), which received Presidential assent on 21 August 2025 and commences unconditionally on 1 April 2026. For tax year 2026-27 (1 April 2026 to 31 March 2027) — the first tax year under the new Act — Indian companies, LLPs, foreign branches and cooperatives face a menu of rates, surcharges and minimum-tax overlays that demands careful modelling. This guide walks through every headline rate, the conditions attached to each concessional regime, MAT, AMT, dividend taxation, effective tax computations, surcharge, cess and the practical decision framework for choosing between the default and concessional regimes. It is written for CFOs, finance controllers, tax managers, company secretaries and professional advisors working on tax year 2026-27 provisioning and return filing.
Definition — Corporate Tax: Corporate tax is the income tax levied on the profits of companies, LLPs and partnership firms under the Income-tax Act, 2025. For domestic companies, the tax is charged on global income; for foreign companies, only on income that accrues in India or is received in India or is attributable to an Indian Permanent Establishment. The charging section is the Sec 4 equivalent of the 2025 Act, and the rates are prescribed in the First Schedule of the Finance Act, 2026.
Under the Income-tax Act, 2025 as amended by Finance Act, 2026, Indian domestic companies have four rate tracks: 30% default (the historical rate for large companies), 25% where turnover in the previous tax year did not exceed ₹400 crore, 22% concessional under the Sec 115BAA equivalent (no exemptions/deductions, MAT not applicable), or 15% new manufacturing under the Sec 115BAB equivalent (incorporated on or after 1 October 2019 and meeting conditions). Foreign companies pay 35% (reduced from 40% by Finance Act, 2024). Surcharge is 7%/12% for domestic and 2%/5% for foreign, and Health & Education Cess is 4% on top. MAT of 15% of book profits applies to non-115BAA/BAB companies; AMT of 18.5% applies to LLPs and specified non-corporates claiming profit-linked deductions. Dividend Distribution Tax was abolished — dividends are taxable in shareholder hands.
The Income-tax Act, 2025 preserves the rate architecture that evolved over the 2019-2024 reform cycle and is now reflected in the First Schedule of the Finance Act, 2026. Rates are applied to total income computed under Chapter IV (five heads), after adjustments and set-off of brought-forward losses.
| Entity | Rate | Condition | MAT/AMT |
|---|---|---|---|
| Domestic company (default) | 30% | Turnover > ₹400 crore in previous tax year | MAT 15% applicable |
| Domestic company (small) | 25% | Turnover ≤ ₹400 crore in previous tax year | MAT 15% applicable |
| Domestic company (Sec 115BAA eq.) | 22% | No specified exemptions/deductions, opt-in irrevocable | MAT not applicable |
| Domestic company (Sec 115BAB eq.) | 15% | New manufacturing, incorporated ≥ 1 Oct 2019, conditions | MAT not applicable |
| Foreign company | 35% | India-source income / Indian PE income | MAT 15% applicable |
| LLP / Partnership firm | 30% | All LLPs and partnership firms | AMT 18.5% may apply |
| Cooperative society (concessional) | 22% / 15% | Sec 115BAD / 115BAE equivalents | AMT not applicable where opted |
The 25% rate applies to domestic companies whose turnover or gross receipts in the previous tax year did not exceed ₹400 crore. For tax year 2026-27, the reference year is tax year 2024-25 (under the repealed 1961 Act — i.e. FY 2024-25 by old terminology). The test is applied on a standalone company basis, not consolidated, and turnover includes sales, services, gross receipts from manufacturing and trading — broadly the revenue recognition line of the audited financial statements.
The 25% rate is the default for mid-sized companies and does not require any opt-in form. It applies automatically as long as the turnover condition is met. Importantly, all the usual deductions under Chapter VIII and the MAT framework continue to apply — unlike the 22%/15% regimes, there is no trade-off of exemptions for the lower rate. For companies that routinely claim SEZ profits, additional depreciation, 80-IA incentives or that carry unused MAT credit, the 25% default rate is often more economical than opting into 22%.
The Sec 115BAA equivalent of the Income-tax Act, 2025 (introduced originally by the Taxation Laws Amendment Act, 2019, now folded into the 2025 Act) offers a flat 22% rate with the following conditions:
Effective tax rate: 22% × 1.10 (surcharge) × 1.04 (cess) = 25.168%.
A domestic company is eligible for the 15% rate under the Sec 115BAB equivalent of the 2025 Act if all of the following are satisfied:
Certain activities are excluded from the definition of manufacturing: development of computer software, mining, conversion of marble blocks into slabs, bottling of gas into cylinders, printing of books, and production of cinematographic film. The option is irrevocable once exercised and MAT does not apply.
Effective tax rate: 15% × 1.10 × 1.04 = 17.16% — the lowest headline corporate tax rate currently available in India and globally competitive.
A foreign company is a company that is not a domestic company — typically incorporated outside India and not wholly owned by Indian residents. Under the Income-tax Act, 2025, a foreign company’s India tax exposure covers:
Rate: 35% (reduced from 40% with effect from tax year 2024-25 under the repealed Act, retained under the 2025 Act). The reduction was a deliberate move to make India more competitive with Singapore, Hong Kong and Dubai for regional headquartering. Surcharge 2% (income ₹1-10 crore) or 5% (above ₹10 crore). Cess 4%. Effective rate at the top slab is approximately 38.22%.
Royalty and FTS income of a foreign company that does NOT have a PE in India is taxed at 20% (as reduced from 25% by Finance Act, 2023, carried forward in the 2025 Act), subject to lower DTAA rates where a TRC and Form 10F are filed. For the DTAA framework, see our NRI and Non-Resident Taxation Guide.
| Entity | Income ≤ ₹1 cr | ₹1 cr – ₹10 cr | Above ₹10 cr |
|---|---|---|---|
| Domestic co. (default) | NIL | 7% | 12% |
| Domestic co. (115BAA/BAB) | 10% | 10% | 10% |
| Foreign company | NIL | 2% | 5% |
| LLP / firm | NIL | 12% | 12% |
Health and Education Cess is a flat 4% on (tax + surcharge) for all categories. Marginal relief applies so the additional tax and surcharge do not exceed the incremental income above the threshold.
MAT is the parallel tax on companies that show substantial book profits in financial statements but low taxable income because of exemptions, incentives and accelerated depreciation. Under the Income-tax Act, 2025, MAT is retained at 15% of book profit (plus surcharge and cess), applicable where the tax under normal provisions is less than 15% of book profit.
Book profit starts from the profit and loss account prepared under Schedule III of the Companies Act, 2013, with specified adjustments:
Where MAT paid exceeds the normal tax, the excess is a MAT credit that can be carried forward and set off for 15 tax years against normal tax liability exceeding MAT in that year. MAT does not apply to companies that have opted for the Sec 115BAA or 115BAB equivalent regimes — a key reason why companies sitting on heavy incentive claims prefer to stay under the 25%/30% track until MAT credit is exhausted. For Ind-AS companies, special book profit adjustments under the equivalent of Sec 115JB(2A)-(2C) apply for transition items (OCI, fair value changes, etc.).
AMT is the counterpart of MAT for LLPs, partnership firms, individuals, HUFs, AOPs and BOIs. It applies only where the taxpayer claims specified profit-linked deductions — Sec 80-IA to 80RRB equivalents, Sec 10AA, and specified investment-linked deductions. AMT is charged at 18.5% of adjusted total income (plus surcharge and cess).
For LLPs, AMT is a real concern where significant 80-IA, 10AA or 80-IB claims are being made — finance functions should run the AMT computation every year as part of tax provisioning. Individuals claiming only Sec 80C/80D/80G under the old regime are generally not exposed to AMT.
The Dividend Distribution Tax (DDT) levied at company level (around 15% + surcharge + cess, effectively ~20%) was abolished by Finance Act, 2020 with effect from 1 April 2020 and has not been reintroduced under the Income-tax Act, 2025. The architecture is now:
LLPs and partnership firms pay a flat 30% on total income, with 12% surcharge above ₹1 crore and 4% cess. Effective maximum: ~34.94%. Key points:
Cooperative societies enjoy a 22% concessional regime (115BAD equivalent) or 15% for new manufacturing cooperatives (115BAE equivalent, set up on or after 1 April 2023). Default slab: 10% / 20% / 30% on income bands of ₹10,000 / ₹10,000–₹20,000 / above ₹20,000.
Example 1 — Small domestic company, 25% default rate: TechNova Pvt Ltd has a turnover of ₹320 crore in tax year 2024-25 (previous year) and total income of ₹15 crore in tax year 2026-27. It has not opted into 115BAA.
Tax at 25%: ₹3,75,00,000. Surcharge at 7% (income between ₹1 and ₹10 crore — but here income is ₹15 crore, so 12%): ₹45,00,000. Subtotal: ₹4,20,00,000. Cess at 4%: ₹16,80,000. Total tax: ₹4,36,80,000. Effective rate: 29.12%.
Example 2 — Company under 115BAA concessional regime: MaxGrowth Ltd opts into the 22% regime with total income of ₹50 crore in tax year 2026-27.
Tax at 22%: ₹11,00,00,000. Surcharge at 10% (flat for 115BAA): ₹1,10,00,000. Subtotal: ₹12,10,00,000. Cess at 4%: ₹48,40,000. Total tax: ₹12,58,40,000. Effective rate: 25.17%. Compare to the default 30% track which would have been: ₹50cr × 30% × 1.12 × 1.04 = ₹17.47cr — a saving of ₹4.89 crore.
Example 3 — New manufacturing company at 15%: PureSteel Pvt Ltd (incorporated October 2023, commenced production February 2025) has total income of ₹40 crore in tax year 2026-27 and opts into Sec 115BAB equivalent.
Tax at 15%: ₹6,00,00,000. Surcharge at 10%: ₹60,00,000. Subtotal: ₹6,60,00,000. Cess at 4%: ₹26,40,000. Total tax: ₹6,86,40,000. Effective rate: 17.16%.
The choice between 25%/30% default and 22% concessional is not automatic. Consider the following before opting into 115BAA:
CA V. Viswanathan: When the 22% and 15% regimes were introduced in 2019, the immediate temptation for many companies was to opt in on day one to capture the headline rate cut. Six years on, the advice I give my corporate clients is the opposite: wait, model, then decide. The irrevocability of the option is unforgiving — I have seen companies that opted in during FY 2019-20 now regretting the lost SEZ profit exemption when their SEZ unit crossed into its high-margin years. Under the Income-tax Act, 2025, the same architecture is carried forward, so the same discipline applies. For companies with turnover up to ₹400 crore, the default 25% rate is often the best starting position — you keep your MAT credit, your 80-IA deductions, your SEZ benefit, and your incentive-linked brought-forward losses. Only after exhausting those should a switch to 22% be considered. For new manufacturing projects, Sec 115BAB at 15% is a no-brainer — but make sure your supply contracts, plant configuration and permissions genuinely meet the “only manufacturing” test. The recent batch of ITAT rulings on companies doing both trading and manufacturing under one entity has been a reminder that the 15% route needs a clean business structure. Finally, the Sec 194T equivalent TDS on partner payments is the most-missed compliance item for LLPs in tax year 2026-27 — budget for quarterly TDS runs on partner remuneration from the first quarter itself. For foreign companies establishing Indian branches, the 35% rate is finally at a level where a branch structure can be competitive with subsidiary structures; the decision should be driven by operational rather than rate considerations.
What is the corporate tax rate for domestic companies in tax year 2026-27?
30% default, 25% if turnover ≤ ₹400 crore in the previous tax year, 22% under the Sec 115BAA equivalent concessional regime, or 15% under the Sec 115BAB equivalent for new manufacturing. Add surcharge 7%/12% or 10% flat for concessional regimes, plus 4% cess.
Who qualifies for the 25% rate?
Domestic companies with turnover or gross receipts ≤ ₹400 crore in the previous tax year. For tax year 2026-27, the reference year is tax year 2024-25 (FY 2024-25 under the repealed Act). No opt-in required; the rate applies automatically. All Chapter VIII deductions and MAT continue to apply.
What is the Sec 115BAA equivalent concessional regime?
A flat 22% rate (plus 10% surcharge and 4% cess = 25.17% effective) for domestic companies that forgo specified deductions (Sec 10AA, additional depreciation, 80-IA/IB/IC/IE etc.) and MAT credit. The option is irrevocable. MAT is not applicable to companies under this regime.
What is the 15% rate for new manufacturing companies?
The Sec 115BAB equivalent offers 15% (effective 17.16%) to companies incorporated on/after 1 October 2019, commencing manufacturing by the sunset date, engaged solely in manufacturing/production, not formed by splitting of existing business, and not using substantial previously-used plant and machinery. Option irrevocable; MAT not applicable.
What is the corporate tax rate for foreign companies?
35% (reduced from 40% by Finance Act, 2024, retained in the 2025 Act). Surcharge 2% or 5%, cess 4%. Effective top rate ~38.22%. Royalty/FTS income without an Indian PE: 20% subject to DTAA.
How does MAT work under the 2025 Act?
MAT at 15% of book profit applies where a company’s normal tax is below 15% of book profit. Book profit is the P&L profit adjusted for specified add-backs and deductions. MAT credit carries forward 15 tax years. MAT does NOT apply to 115BAA/115BAB companies.
What is AMT and when does it apply?
AMT at 18.5% of adjusted total income applies to LLPs, firms, individuals/HUFs/AOPs/BOIs claiming specified profit-linked deductions. Not applicable if adjusted total income ≤ ₹20 lakh for individuals/HUFs. AMT credit carries forward 15 tax years.
Are dividends taxable in shareholder hands?
Yes. DDT was abolished from 1 April 2020 and not reintroduced. Dividends are taxable as income from other sources at slab rates for residents (with 10% TDS above ₹10,000), and at 20% for non-residents (subject to DTAA). Sec 80M equivalent eliminates cascading for inter-corporate dividends.
What surcharge applies to corporate tax?
Domestic default: 7% (₹1-10 cr) / 12% (> ₹10 cr). 115BAA/BAB: flat 10%. Foreign companies: 2% (₹1-10 cr) / 5% (> ₹10 cr). LLP/firm: 12% > ₹1 crore. Cess 4% on top. Marginal relief applies at each threshold.
What is the tax rate for LLPs and partnership firms?
30% flat. 12% surcharge if income > ₹1 crore. 4% cess. Effective maximum ~34.94%. AMT at 18.5% may apply. Remuneration and interest to partners deductible within limits. Sec 194T TDS at 10% on partner payments > ₹20,000 per tax year.
How are cooperative societies taxed?
Concessional 22% (Sec 115BAD equivalent), or 15% for new manufacturing cooperatives set up on/after 1 April 2023 (Sec 115BAE equivalent), both with 10% surcharge and 4% cess. Default slab: 10% / 20% / 30%. AMT not applicable if opted into concessional regime.
When should a company opt into the 115BAA regime?
When the current benefit of deductions, SEZ exemptions, brought-forward MAT credit and incentive-linked losses is less than the 5-10 year saving from the 22% rate. Model forward before opting in because the choice is irrevocable.
What is the effective tax rate including surcharge and cess?
22% concessional → 25.17%. 15% new manufacturing → 17.16%. 25% small company (> ₹10cr income) → 29.12%. 30% default (> ₹10cr) → 34.94%. Foreign company (> ₹10cr) → 38.22%. Use these for provisioning and Ind AS 12 deferred tax computations.
Can a company switch back from 115BAA to the normal regime?
No. Once opted, the 22% regime (and the 15% 115BAB regime) is irrevocable for all subsequent tax years. The switch must be modelled carefully before the form is filed — there is no undo.
Is MAT credit lost on opting into 115BAA?
Yes — brought-forward MAT credit lapses on opting into the 115BAA equivalent regime. Companies with significant unused MAT credit typically stay under the default regime until credit is fully utilised before switching.
Related reading: Income-tax Act, 2025 — Complete Guide | Tax Slabs 2026-27 | Surcharge & Cess Guide | Startup Tax Holiday | NRI & Foreign Company Taxation | TDS Rate Chart 2026-27
For corporate tax provisioning, 115BAA/BAB opt-in analysis, MAT/AMT computation and tax year 2026-27 return filing, contact Virtual Auditor, Chennai — phone +91 99622 60333, email support@virtualauditor.in.