Corporate Tax Rates Under the New Income Tax Act — Complete Guide

Corporate Tax Rates Under the New Income Tax Act

Company taxation in India isn’t a single flat rate — it’s a menu of options, and the choice a company makes at the very beginning of its tax planning can lock in significantly different outcomes for years.

Domestic Company Tax Rates

Surcharge and a 4% health & education cess apply on top of these base rates, varying by income level and company category.

Why Companies Choose the Concessional Regime

The 22% (or 15% for new manufacturing) rate is attractive specifically because it’s lower than the standard 25%/30% rates, but it comes at the cost of giving up most exemptions, deductions, and incentives (like additional depreciation, specific profit-linked deductions, and various other tax holidays). A company must weigh whether the deductions it would otherwise claim exceed the rate benefit of switching.

Minimum Alternate Tax (MAT)

Companies that continue under the standard regime (not opting for the concessional rates) may be subject to MAT, which ensures a minimum tax is paid even if book profits are high but taxable income (after exemptions/deductions) is artificially low. MAT credit paid in excess of regular tax can be carried forward and set off in future years when regular tax exceeds MAT. Companies opting for the concessional 22%/15% regimes are exempt from MAT entirely.

Foreign Companies

Foreign companies operating in India (through a branch, project office, or otherwise) are generally taxed at a higher rate (historically around 35-40%, subject to periodic revision) on their India-sourced income, though DTAA provisions may provide relief or a different effective rate depending on the specific treaty and nature of income.

Worked Example

A mid-sized manufacturing company with ₹300 crore turnover has traditionally claimed substantial depreciation and other incentives, resulting in an effective tax rate close to 24% under the standard 25% regime. After careful analysis, it finds that switching to the 22% concessional regime (forgoing those specific incentives) would actually increase its effective rate slightly, since its incentive-driven savings outweighed the rate reduction — it decides to remain under the standard regime.

Frequently Asked Questions

Q1. Can a company switch back and forth between the concessional and standard regimes each year? Generally, once a company opts for the concessional regime (like the 22% rate), that choice is largely irrevocable for that company going forward — switching back to the standard regime isn’t freely available, so the decision requires careful long-term planning.

Q2. Does the new manufacturing company 15% rate apply to all types of manufacturing? No — it applies to companies engaged in specified manufacturing/production activities, with certain exclusions (like specific service-oriented or trading businesses), and requires commencing manufacturing operations by a specified deadline.

Q3. Is MAT credit available indefinitely, or does it expire? MAT credit can generally be carried forward for a specified number of years (historically up to 15 years) and set off against regular tax in years when regular tax liability exceeds the MAT liability.

Reflects the corporate tax framework applicable for Tax Year 2026-27, carried forward under the Income Tax Act, 2025 with renumbered sections. Verify current rates against the applicable Finance Act.

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.