What is the corporate income tax rate in India?
Most Indian companies pay corporate income tax at an effective rate of ~25.17% (22% base under Section 115BAA + 10% surcharge + 4% cess). New manufacturing companies incorporated after 1 October 2019 can pay ~17.01% (15% base under Section 115BAB). The old regime base rate of 30% (effective ~34.94% for large companies) is rarely optimal for most businesses.
Detailed Explanation
## Corporate Income Tax Rate in India for FY 2025-26
India's corporate income tax structure offers three distinct rate regimes, and choosing the right one at incorporation time is one of the most important tax decisions a company makes.
## The Three Regimes
### 1. Section 115BAA — The Standard Choice (22% base rate)
Available to all domestic companies from AY 2020-21 onwards. Once opted, it cannot be reversed.
Effective rate breakdown: - Base rate: 22% - Surcharge: 10% on the base tax - Health & Education Cess: 4% on (tax + surcharge) - Effective rate: ~25.17%
This regime trades away most deductions (80IC, 80IB, 80-IAC, 10AA) in exchange for a lower headline rate. Companies can still claim: - Section 80JJAA (30% deduction on new employee wages for 3 years) - Section 80G (approved donations) - All depreciation under Section 32 - All ordinary business expenses under Section 37(1)
Who should choose this: Most established businesses with no pending investment in special economic zones or startup incentive claims.
### 2. Section 115BAB — New Manufacturing (15% base rate)
Available only to new domestic manufacturing companies incorporated after 1 October 2019 that commence production before 31 March 2024 (extended by the government in some cases to March 2025).
Effective rate breakdown: - Base rate: 15% - Surcharge: 10% on the base tax - Health & Education Cess: 4% on (tax + surcharge) - Effective rate: ~17.01%
This is India's most competitive manufacturing tax rate globally — designed to attract investment into Make in India. Conditions: - Must not be formed by splitting/reconstruction of an existing business - Must not use plant and machinery previously used in India beyond 20% of total value - Business must be manufacturing (excludes software, services, mining)
### 3. Old Regime — 30% Base Rate
The pre-2019 regime that allows all deductions and incentives.
Effective rate for companies with net income above INR 10 crore: - Base rate: 30% - Surcharge: 12% on base tax - Health & Education Cess: 4% - Effective rate: ~34.94%
For companies with income below INR 1 crore: 30% + 7% surcharge + 4% cess = ~33.38%.
The old regime still makes sense for: - Startups with significant 80-IAC deductions in early years - Companies in special economic zones (Section 10AA 100% deduction for first 5 years) - Businesses with large 80IC deductions from Northeast India / hill station operations
## MAT (Minimum Alternate Tax)
Under the old 30% regime, companies pay at least 15% of book profit (before tax) even if regular tax is lower, under Section 115JB. MAT credit can be carried forward for 15 years.
Companies under Section 115BAA/BAB are fully exempt from MAT. This is a significant administrative simplification — no book-profit computation needed.
## Surcharge Rates Summary
| Net Income | Old Regime Surcharge | 115BAA/BAB Surcharge | |------------|---------------------|----------------------| | Up to INR 1 crore | Nil | 10% | | INR 1-10 crore | 7% | 10% | | Above INR 10 crore | 12% | 10% |
Note: The 115BAA/BAB flat 10% surcharge is advantageous for large companies — under the old regime, companies above INR 10 crore pay a 12% surcharge.
## For Foreign Companies
Foreign companies (not resident in India) pay tax only on India-sourced income: - Royalties and fees for technical services: 10% - Dividends: 20% - General business income: 40% (plus applicable surcharge and cess) - Reduced rates under Double Taxation Avoidance Agreements (DTAA) may apply
## Practical Example
A Private Limited company with INR 1 crore net profit:
115BAA option: - Tax: INR 1 crore x 22% = INR 22 lakh - Surcharge (10%): INR 2.2 lakh - Cess (4%): INR 97,200 - Total: INR 25.17 lakh
Old regime option (INR 1 crore, no special deductions): - Tax: INR 1 crore x 30% = INR 30 lakh - Surcharge (7%, as income is INR 1-10 crore): INR 2.1 lakh - Cess (4%): INR 1.28 lakh - Total: INR 33.38 lakh
The 115BAA saves INR 8.21 lakh (24.6% saving) with no special deductions — making the choice clear for most companies without pending incentive claims.
Source: https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-0
Real-World Examples
Software startup choosing between 115BAA and old regime with 80-IAC
A DPIIT-recognised startup with INR 80 lakh profit in year 3 claims 100% 80-IAC deduction under old regime, paying INR 0 income tax (only MAT at 15% of book profit applies). Under 115BAA at 25.17%, it would pay INR 20.14 lakh. For early-stage startups with significant profits, the old regime with 80-IAC can be better for 3 years, then switch if 80-IAC expires.
Manufacturing company qualifying for Section 115BAB
An electronics manufacturing company incorporated in December 2020 and commencing production in January 2022 qualifies for Section 115BAB. With INR 5 crore profit, it pays approximately 17.01% (INR 85.05 lakh) versus 25.17% (INR 1.26 crore) under 115BAA — a saving of INR 40.5 lakh, making India's manufacturing sector highly attractive for new investment.
Common Mistakes to Avoid
- Assuming all companies pay 30% tax — the effective rate for most companies under 115BAA is ~25.17%
- Opting for 115BAA before exhausting startup incentives (80-IAC) or SEZ deductions — the election is irrevocable
- Forgetting that MAT still applies under the old regime even with zero taxable income
- Confusing the base rate with the effective rate — always factor in surcharge and cess for actual liability
Frequently Asked Questions
Can a company change from Section 115BAA back to the old 30% regime?
No. Once a company opts for Section 115BAA (22% base rate), the election is irrevocable. The company cannot switch back to the old regime in any subsequent year. This makes the decision to opt for 115BAA a long-term one — evaluate all pending deduction claims before electing.
What is the corporate tax rate for a new Private Limited company in India?
A new Private Limited company in India typically opts for Section 115BAA, paying an effective rate of approximately 25.17% on net profits (22% base + 10% surcharge + 4% health and education cess). If the company is a new manufacturer incorporated after 1 October 2019 and commenced production before 31 March 2024, it may qualify for the lower effective rate of 17.01% under Section 115BAB.
Does India have a minimum corporate tax?
Yes, under the old 30% regime, Minimum Alternate Tax (MAT) under Section 115JB requires companies to pay at least 15% of book profit even if regular taxable income is lower. However, companies that opt for Section 115BAA or 115BAB are completely exempt from MAT, which is one of the key advantages of the concessional rate regimes.
Practical Tips
- Make the 115BAA election in the first ITR-6 filed by the company — do not delay, as missed deductions cannot be retroactively claimed in later years under the old regime
- For new manufacturing companies, verify eligibility for 115BAB before incorporation to ensure the entity is not formed by splitting an existing business
- Model both tax regimes with a CA before the company's first profitable year — the break-even depends heavily on the value of deductions available under the old regime
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