Corporate Tax: Meaning, Types, Advantages, and How to save

Understand what corporate tax is, its types, rates, deductions, and how businesses in India can plan effectively to reduce tax liabilities
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3 min
29 June 2026

Direct taxes and indirect taxes are the two main categories of taxation in India. Direct tax is levied on the income earned by different types of business entities during a financial year. The Income Tax Department recognises various categories of taxpayers, and each category is subject to a different tax rate. For example, an individual taxpayer and a company are taxed at different rates under the applicable income tax provisions.

What is corporate tax?

Corporate tax is a levy placed on the profit of a corporation. It is imposed by the government and is a key source of revenue. Domestic companies are taxed differently than foreign companies. Additionally, the introduction of GST (Goods and Services Tax) has streamlined indirect taxes, affecting the overall tax framework for businesses. Corporate tax compliance is essential for all businesses operating within the country, ensuring they contribute their fair share to the nation’s economy. Proper accounting and timely filing of tax returns are crucial for companies to avoid penalties and legal issues.

Check your business loan eligibility to ensure your financial planning aligns with tax compliance requirements.

For businesses, understanding different tax identification numbers like TAN, PAN, and TIN is crucial for compliance and tax filings. Learn more about the difference between TAN, PAN, and TIN numbers.

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Types of corporate tax

Tax on domestic companies

Domestic companies, including private limited companies, are those registered under the Indian Companies Act. They are subject to corporate tax based on their annual income. The rates differ if the company's turnover exceeds specific thresholds.

Tax on foreign companies

Foreign companies refer to corporations that have operations and income originating from India but are registered outside India. These companies are taxed at different rates compared to domestic companies, reflecting their international status.

Minimum alternate tax (MAT)

To ensure that all companies contribute to the tax pool, even if they are claiming exemptions and deductions, the MAT was introduced. It ensures that companies pay a minimum amount of tax based on their book profits.

Dividend distribution tax (DDT)

When companies distribute profits as dividends to their shareholders, they are required to pay DDT. This tax is deducted before the dividends are distributed to ensure the government receives tax on distributed profits.

Surcharge and cess

In addition to the basic corporate tax rates, companies may also be liable to pay a surcharge and cess. These additional charges are calculated as a percentage of the income tax and contribute to specific welfare programs and national funds. For self-employed individuals managing their finances, options such as a personal loan for self-employed can help smooth cash flow during tax payment periods or fund business growth.

Corporate tax on domestic companies

The following tax rates apply to domestic companies from Assessment Year (AY) 2020–21 under the respective provisions of the Income-tax Act:

Section

Tax rate

Surcharge

Section 115BA

25%

7% or 12%*

Section 115BAA

22%

10%

Section 115BAB

15%

10%

Any other case

30%

7% or 12%*


*The applicable surcharge depends on the company's total income. Under Section 115BA (and in other applicable cases), a surcharge of 7% applies where the total income exceeds Rs. 1 crore but does not exceed Rs. 10 crore. A surcharge of 12% applies where the total income exceeds Rs. 10 crore. However, companies opting for taxation under Section 115BAA or Section 115BAB are subject to a flat surcharge of 10%, irrespective of their total income.

Corporate tax on foreign companies

The following tax rates apply to foreign companies from Assessment Year (AY) 2026–27 based on the nature of their income:

Nature of income

Tax rate

Royalty or fees for technical services received from the Government of India or an Indian concern under an agreement entered into before 1 April 1976 and approved by the Central Government

50%

Any other income

35%*


*From Assessment Year (AY) 2020–21 to AY 2024–25, any other income was taxed at 40%.

Surcharge on corporate tax

The following surcharge rates apply based on a company's total income:

Particulars

Applicable surcharge

Total income exceeds Rs. 1 crore but does not exceed Rs. 10 crore

7% of the income tax payable by a domestic company or 2% of the income tax payable by a foreign company

Total income exceeds Rs. 10 crore

12% of the income tax payable by a domestic company or 5% of the income tax payable by a foreign company


Health and Education Cess: A Health and Education Cess of 4% is levied on the total of the income tax and the applicable surcharge. This amount is added to the company's overall tax liability.

Minimum Alternate Tax (MAT): Companies, including foreign companies, may be liable to pay Minimum Alternate Tax (MAT) at 15% of their book profits if the tax payable under the normal provisions is less than 15% of their book profits. MAT applies only where the company has not opted for taxation under Section 115BAA or Section 115BAB.

Corporate tax deductions and exemptions

Companies can reduce their tax liability by claiming deductions and incentives available under the applicable provisions of the Income-tax Act. Some of the key deductions include:

  • Depreciation (Section 32): Companies can claim depreciation on eligible fixed assets used for business purposes.
  • Donations (Section 80G): Eligible donations made to approved charitable institutions and funds may qualify for tax deductions, subject to the prescribed conditions.
  • Research and Development (Section 35): Expenditure incurred on eligible research and development activities may qualify for tax deductions.
  • Eligible Start-ups (Section 80-IAC): Start-ups recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) may be eligible for a tax holiday for three consecutive assessment years, subject to the prescribed conditions.
  • Employee welfare expenses: Eligible business expenses, such as contributions to the Employees' Provident Fund (EPF), gratuity, and employee health insurance premiums, may be claimed as deductions in accordance with the applicable provisions.

Advantages of a corporate tax

  • Revenue generation for the government: Corporate tax is a significant source of revenue for the government, which is used to fund public services and infrastructure development. For new entrepreneurs, startup business loans can provide the necessary capital to comply with tax obligations while establishing their ventures.
  • Encourages compliance: The structured corporate tax system encourages businesses to maintain accurate financial records and comply with tax regulations, fostering a culture of transparency and accountability.
  • Economic stability: Corporate tax contributes to the economic stability of the country by ensuring that businesses contribute to the national income, which supports various welfare schemes and development projects.
  • Promotes investment: With clear tax regulations, businesses can plan their investments better, knowing the tax implications. This promotes domestic and foreign investments in the country.  Check your pre-approved business loan offer to explore funding options that can support these tax-related financial plans.

How to save corporate tax?

  • Utilise deductions and exemptions: Companies should fully utilise available deductions and exemptions, such as those for research and development, to reduce their taxable income.
  • Invest in tax-saving instruments: Investing in government-approved tax-saving instruments can help companies lower their taxable income, such as bonds and specific financial schemes.
  • Proper tax planning: Engaging in proper tax planning with the help of financial experts can help companies identify and leverage various tax-saving opportunities.
  • Maintain accurate records: Accurate and detailed financial records are essential for claiming deductions and ensuring compliance with tax regulations. This helps avoid unnecessary tax liabilities and penalties.

Common mistakes to avoid while filing corporate tax

  • Missing filing deadlines: Filing tax returns after the due date may result in interest charges, penalties, and other consequences under the Income Tax Act.
  • Claiming ineligible deductions: Claiming deductions or exemptions without meeting the prescribed eligibility criteria may lead to additional tax liability, penalties, or scrutiny by the tax authorities.
  • Poor record-keeping: Maintain books of account and supporting financial records for the period prescribed under the Income Tax Act to support your tax filings and claims.
  • Ignoring advance tax payments: Where applicable, pay advance tax in the prescribed quarterly instalments to avoid interest for short payment or delayed payment of tax.

Corporate tax vs. income tax

Aspect

Corporate tax

Income tax (Individuals and HUFs)

Applicable to

Companies and LLPs

Individuals and Hindu Undivided Families (HUFs)

Tax rates

Fixed rates, depending on the applicable provisions

Slab-based rates under the applicable tax regime

Eligible deductions

Business-related deductions, such as eligible expenses, depreciation, and qualifying research and development expenditure

Eligible deductions and exemptions, such as those available under Sections 80C and 80D, and House Rent Allowance (HRA), where applicable

Taxable income

Profits earned by companies and LLPs

Income earned by salaried, self-employed, and other individual taxpayers, as applicable


Conclusion

Corporate tax is a vital component of the Indian taxation system, ensuring that businesses contribute to the nation's economic growth. Understanding the various types of corporate tax, applicable rates, deductions, and advantages can help companies manage their tax liabilities effectively. Proper tax planning and utilisation of available deductions can significantly reduce the tax burden, allowing businesses to reinvest savings into growth and development. For businesses seeking capital to support expansion or manage tax payments, a secured business loan can provide a reliable financing option with favourable terms.

Know more about Bajaj Finance Business Loans

Here are some of the key advantages of our business loan that make it an ideal choice for your business expenses:

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Frequently asked questions

What is meant by corporate tax?
Corporate tax refers to a tax imposed on the profits of a corporation. This tax is levied by the government and is based on the company's net income, which is revenue minus expenses such as the cost of goods sold, wages, and other operational costs. Corporate tax rates can vary depending on the type and income of the company, and it plays a crucial role in generating revenue for public services and infrastructure development. 

Who will be responsible for paying corporate taxes?
The responsibility for paying corporate taxes lies with the corporate itself. This includes both domestic and foreign companies operating in India. The company’s management must ensure accurate calculation and timely payment of taxes based on their net income. This task is typically handled by the finance or accounting department within the company, overseen by the Chief Financial Officer (CFO) or equivalent. Failure to comply can result in penalties and legal repercussions.

What is the distinction between corporate and personal income taxes?
Corporate income tax is levied on the profits of companies and corporations, calculated on their net income after deducting business expenses. Personal income tax, on the other hand, is imposed on individual earnings, including salaries, wages, and other personal income sources. While corporate tax rates and regulations apply to businesses, personal income tax rates vary based on individual income brackets and personal circumstances. Both taxes contribute to government revenue but are applied to different entities and income types.

How much is corporate tax in India?

Corporate tax rates in India vary depending on the type of company and the tax regime chosen. Domestic companies may be taxed at different rates under the Income Tax Act, 1961, subject to eligibility conditions, while foreign companies are taxed at separate rates. Applicable surcharge and health and education cess may also apply.

Is corporation tax shared with states?

Yes, corporation tax forms part of the divisible pool of central taxes that is shared with states based on the recommendations of the Finance Commission. However, the tax is levied and collected by the Central Government under the provisions of the Income Tax Act, 1961.

Is corporation tax direct or indirect tax?

Corporation tax is a direct tax because it is levied directly on the taxable income or profits of a company. The company is responsible for paying the tax to the government and cannot transfer the tax burden to customers, unlike indirect taxes such as GST.

When are corporate tax returns due?

The due date for filing a corporate income tax return depends on the category of the company and whether a tax audit is applicable. Most companies must file their return by the prescribed due date under the Income Tax Act, 1961, unless the government extends the deadline through official notification.

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