How Corporate Tax Works in India — Complete Simple Guide (2026)
Note — This guide is for businesses and companies only. If you are looking for individual income tax guide read our Personal Income Tax Guide here. (https://narrowit.in/how-income-tax-works-in-india-complete-simple-guide-2026/)
Table of what you need to know.
- Introduction
- What is Corporate Tax?
- Corporate Tax Rates in India 2026 — Simple Table
- What is MAT — Minimum Alternate Tax?
- New Updates in Corporate Tax — Finance Act 2026
- What is Surcharge and Cess — Why Your Actual Tax is Higher
- How to Reduce Corporate Tax Legally
- When and How to Pay Corporate Tax
- Final Summary — Everything in 6 Lines
Introduction
You started a business or you are thinking of starting one. However you are confused about how much tax your company has to pay. Also what is MAT? What is the difference between domestic and foreign company tax? Therefore this guide explains everything about corporate tax in India in simple language. Because understanding your business tax can save you lakhs of rupees every year.
What is Corporate Tax?
Corporate tax is the tax a company pays to the government on its profits. Also it is different from personal income tax which individuals pay. Therefore if your business makes a profit the government takes a percentage of that profit as tax.
In India corporate tax is governed by the new Income Tax Act 2025 which came into effect from April 1 2026. Also the rates depend on what type of company you are and how much turnover you have.
Corporate Tax Rates in India 2026 — Simple Table
Here are the current rates for different types of companies:
Domestic companies with turnover below ₹400 crore — 25% base tax rate. Also after adding surcharge and 4% cess the effective rate becomes around 26% to 29%. Therefore most small and medium Indian businesses fall in this category.
Domestic companies with turnover above ₹400 crore — 30% base tax rate. Also after surcharge and cess effective rate goes up to around 34.94%. However very few Indian businesses cross this turnover level.
Section 115BAA — concessional rate for all domestic companies — 22% base tax rate. Also no MAT applies. Therefore effective rate after surcharge and cess is 25.17%. However you cannot claim most deductions under this option.
New manufacturing companies (set up before March 31 2024) — 15% base tax rate. Also effective rate after surcharge and cess is around 17%. However new companies starting in 2026 are no longer eligible for this rate.
Foreign companies operating in India — 35% base tax rate. Also after surcharge and cess effective rate goes up to around 38% to 40%. Therefore foreign companies pay significantly more tax than Indian companies.
What is MAT — Minimum Alternate Tax?
MAT stands for Minimum Alternate Tax. Also it is one of the most confusing parts of corporate tax for business owners. Therefore here is the simple explanation:
Some profitable companies used to claim so many deductions that their tax bill became zero. Because of this the government introduced MAT to ensure every company pays at least some minimum tax.
How it works — if your normal tax is less than 14% of your book profits then you must pay MAT at 14% instead. Also the MAT rate was reduced from 15% to 14% in Finance Act 2026. Therefore companies now pay slightly less MAT than before.
However if you opt for Section 115BAA concessional rate MAT does not apply to you at all. Because the concessional regime already has a lower rate and therefore MAT is not needed.
New Updates in Corporate Tax — Finance Act 2026
Here are the important changes that came into effect from April 1 2026:
MAT rate reduced — from 15% to 14% for all companies. Also MAT credit can now be carried forward for 15 years instead of earlier limits. Therefore companies have more flexibility in using their MAT credit.
IFSC units get better rates — units in International Financial Services Centres now pay only 15% tax after their tax holiday period. Also the tax holiday period itself has been increased to 20 years out of 25 years. Therefore businesses in GIFT City and other IFSC locations get significant tax advantages.
Startups get big benefit — eligible startups under Section 80-IAC can claim 100% profit deduction for any 3 consecutive years within their first 10 years. Also they must have DPIIT certification to claim this benefit. Therefore starting a registered startup in India has genuine tax advantages.
What is Surcharge and Cess — Why Your Actual Tax is Higher
Most people get confused because the base tax rate and actual tax rate are different. However here is the simple explanation:
Surcharge is an additional tax on top of base tax. Also it varies based on income level — typically 7% to 12% for domestic companies. Therefore your actual tax is always higher than the base rate.
Health and Education Cess is 4% on top of base tax plus surcharge. Also every company must pay this. Therefore always calculate cess when planning your tax.
Simple example — if your base tax is 25% and surcharge is 7% your total before cess is 26.75%. Also add 4% cess on 26.75% which adds another 1.07%. Therefore your effective total tax rate becomes around 27.82%.
How to Reduce Corporate Tax Legally
Here are the most important ways businesses reduce tax legally:
Section 80-IAC for startups — 100% profit deduction for 3 years. Also must be DPIIT registered startup. Therefore if you have a startup register with DPIIT immediately.
SEZ units — businesses in Special Economic Zones get 100% deduction on export income for first 5 years. Also 50% deduction for next 5 years. Therefore location of your business matters for tax planning.
Section 115BAA — opt for 22% flat rate and forget about deductions. Also no MAT hassle. Therefore for companies that do not have many deductions this is the simplest and cleanest option.
Depreciation — claim depreciation on all business assets — computers, furniture, machinery, vehicles. Also accelerated depreciation is allowed on certain assets. Therefore always track your assets carefully.
Business expenses — all genuine business expenses reduce your taxable profit. Also salaries, rent, marketing costs, travel, and professional fees are all deductible. Therefore keep proper records of every business expense with receipts.
When and How to Pay Corporate Tax
Corporate tax is not paid once a year. Also it must be paid in advance throughout the year. Therefore missing advance tax deadlines results in interest penalties.
Advance tax schedule for companies:
By June 15 — pay at least 15% of estimated annual tax. By September 15 — pay at least 45% of estimated annual tax. By December 15 — pay at least 75% of estimated annual tax. By March 15 — pay 100% of estimated annual tax.
Also if your company’s tax liability is above ₹10,000 per year advance tax is mandatory. Therefore plan your cash flow accordingly throughout the year.
File your Income Tax Return by October 31 every year if your company requires audit. Also companies not requiring audit must file by July 31. Therefore mark these dates in your calendar.
Final Summary — Everything in 6 Lines
Corporate tax in India ranges from 22% to 35% depending on company type and turnover. Also MAT ensures every company pays at least 14% of book profits as tax. Therefore choose Section 115BAA at 22% if you want simplicity and no MAT hassle. Also startups registered with DPIIT get 100% tax exemption for 3 years. Because advance tax must be paid quarterly missing deadlines results in interest penalties. Therefore always consult a CA for your specific business tax planning.
Disclaimer This article is for informational and educational purposes only. Also tax laws change frequently. Therefore always consult a qualified CA or tax advisor for your specific business situation. Narrowit.in is not responsible for any financial or legal decisions made based on this article.