Corporate Tax in India 2026: Rates, Surcharge & Rules Explained

Corporate tax planning in India isn't as simple as applying a single flat rate to company profits — the actual rate a business pays depends heavily on decisions made at incorporation, the specific tax regime chosen, company turnover, and whether it's engaged in manufacturing. Understanding this structure, including how surcharge is calculated on top of the base rate, is essential for accurate tax planning. This blog breaks down corporate tax in India for 2026 clearly.

Corporate Tax Structure in India: The Big Picture

Corporate taxation in India is governed by the Income Tax Act, 1961, with rates varying based on company type (domestic vs foreign), turnover, total income, and which tax regime the company elects. Rather than a single number, corporate tax in India is best understood as a range, with the specific rate depending on choices made by the business.

Standard Domestic Company Tax Rates

• General rate: 30% for domestic companies not opting for any concessional regime.
• Reduced rate for smaller companies: 25% for domestic companies with turnover up to ₹400 crore in the relevant previous financial year.

Section 115BAA: The Concessional Regime

Section 115BAA, introduced in September 2019, allows any domestic company — regardless of sector or turnover — to elect a flat 22% base tax rate, provided the company forgoes certain deductions and exemptions (including most Chapter VI-A deductions and Section 10AA benefits). Companies choosing this option:

• Pay a flat 10% surcharge, irrespective of total income level (notably more favourable than the standard, income-based surcharge structure for higher-income companies).
• Pay a 4% Health and Education Cess on top of the tax and surcharge combined.
• Are exempt from Minimum Alternate Tax (MAT).
• End up with an effective tax rate of approximately 25.17%.

This option must be exercised before the income tax return filing due date (generally September 30 of the relevant assessment year), and once chosen, the decision is permanent and cannot be reversed.

Section 115BAB: The Manufacturing-Specific Regime

Section 115BAB offers an even lower rate — a 15% base tax rate — specifically for new domestic manufacturing companies. However, eligibility requires the company to have been incorporated on or after October 1, 2019, and to have commenced production before a specified deadline (March 31, 2024, as per current provisions, though this has been subject to periodic government review). With the same 10% surcharge and 4% cess structure, the effective rate under this section works out to approximately 17.16%. It's worth noting that businesses incorporating fresh in 2026 are generally no longer eligible for this specific rate, given the production-commencement deadline has passed.

Understanding Corporate Surcharge

Surcharge is an additional tax levied on top of the base income tax, and its calculation differs depending on which regime a company operates under:

• Under Section 115BAA or 115BAB: A flat 10% surcharge applies, regardless of the company's total income level.
• Under the general/standard tax provisions (not opting for 115BAA/115BAB): Surcharge is tiered based on income — 7% for companies with total income exceeding ₹1 crore but not exceeding ₹10 crore, and 12% for companies with total income exceeding ₹10 crore. Companies with total income of ₹1 crore or below pay no surcharge.

This tiered structure means the concessional regimes (115BAA/115BAB) can actually work out more favourably for higher-income companies that would otherwise face the higher 12% surcharge tier under standard provisions.

Health and Education Cess

Regardless of which regime applies, a flat 4% Health and Education Cess is levied on the total of the base tax plus applicable surcharge — this is a consistent, non-negotiable component across all corporate tax calculations in India.

Minimum Alternate Tax (MAT)

MAT ensures that companies reporting significant book profits but minimal taxable income (due to exemptions and deductions) still pay a minimum level of tax. The current MAT rate is 15% of book profits for domestic companies operating under standard tax provisions. Importantly, MAT provisions generally do not apply to companies that have opted for Section 115BAA or 115BAB, since these regimes already require forgoing most deductions and exemptions in exchange for the lower headline rate.

Foreign Company Tax Rates

Foreign companies operating in India (including branches, rather than incorporated domestic subsidiaries) generally face a higher effective tax rate, often around 35-40% including surcharge and cess, compared to a domestic subsidiary electing Section 115BAA at an effective rate of 25.17%. This meaningful gap is a deliberate policy signal, encouraging foreign investors to structure their India operations through domestic incorporation rather than branch operations.

Choosing the Right Tax Regime: A Practical Illustration

Consider a domestic company with ₹2 crore in net profit that doesn't qualify for manufacturing-specific benefits:

• Under Section 115BAA: Tax at 22% (₹44,00,000), plus 10% surcharge (₹4,40,000), plus 4% cess — totalling approximately ₹50.3 lakh, an effective rate around 25.17-25.6%.
• Under standard provisions with exemptions claimed: The calculation varies considerably depending on specific exemptions claimed, but often results in a comparable or higher effective rate once the 12% surcharge tier applies for income above ₹10 crore.

The right choice depends heavily on a company's specific exemption eligibility, growth stage, and long-term tax planning strategy — this decision is generally best made with professional tax advisory input, given its largely irreversible nature.

Final Thoughts

Corporate tax in India in 2026 offers meaningful flexibility through concessional regimes like Section 115BAA and 115BAB, but choosing the right structure requires careful evaluation of a company's specific circumstances — turnover, sector, exemption eligibility, and growth trajectory. Given that regime choices are generally permanent once elected, thorough planning before incorporation or before the relevant filing deadline is essential.

To explore more detailed guidance on corporate tax rates and regime selection in India, refer to the corporate surcharge guide for complete, updated information.

Frequently Asked Questions

What is the standard corporate tax rate in India?

30% for domestic companies not opting for a concessional regime, or 25% for companies with turnover up to ₹400 crore in the relevant previous year.

What is the effective tax rate under Section 115BAA?

Approximately 25.17%, combining the 22% base rate, a flat 10% surcharge, and 4% health and education cess.

How does corporate surcharge differ between regimes?

Under Section 115BAA/115BAB, a flat 10% surcharge applies regardless of income; under standard provisions, surcharge is tiered at 7% (income above ₹1 crore) or 12% (income above ₹10 crore).

Can a company switch back to the standard tax regime after opting for Section 115BAA?

No, once a company opts for Section 115BAA, the decision is permanent and cannot be reversed.