New Delhi: For decades, corporate taxation in India worked on a simple enough premise: earn profits, pay a fixed share to the government. That simplicity is gone. What has replaced it is a framework that asks companies to make consequential choices — and live with them.
The change did not happen overnight. A series of legislative interventions, capped most significantly by the Finance Act amendments of 2019 and refined in subsequent budgets, have produced a tax structure that looks less like a levy and more like a menu. Companies now choose their regime, and the choice determines not just what they pay but how they run their books.
What the rates actually say
The 30 percent corporate tax rate still exists. It is not, however, what most companies pay. Domestic firms with annual turnover at or below Rs 400 crore — measured against the FY 2019–20 figures — face a base rate of 25 percent. Given that a substantial majority of registered companies fall within that threshold by revenue, 25 percent is closer to the working rate for much of corporate India.
The more significant departures come through two opt-in provisions. Section 115BAA offers a 22 percent base rate to companies willing to surrender a defined set of exemptions and deductions. The trade is explicit: stop claiming accelerated depreciation, area-linked concessions, and a range of other offsets, and the tax rate falls. Once surcharge and cess are added in, the effective liability under 115BAA comes to 25.17 percent — marginally higher than the base rate suggests, but still meaningfully lower than staying in the conventional framework for many mid-to-large firms.
Section 115BAB goes further. New manufacturing companies incorporated after October 1, 2019 — provided they were operational by March 31, 2024 — are taxed at 15 percent on base profits. With surcharge and cess, that rises to 17.16 percent. By regional standards, that is a sharp number. The provision is unambiguously aimed at pulling industrial investment into India at a moment when global supply chains are being renegotiated.
The additions that change the arithmetic
Quoted rates rarely tell the full story in Indian taxation. Surcharges and cess consistently push effective rates above what the headline figure implies.
Companies choosing the 115BAA or 115BAB regimes face a fixed surcharge of 10 percent on their base tax. Those remaining in the conventional system pay 7 percent once profits cross Rs 1 crore, and 12 percent beyond Rs 10 crore. On top of this, a 4 percent health and education cess applies uniformly — no exceptions, no scaling. The practical result is that a company nominally taxed at 22 percent ends up paying closer to a rupee in four.
Then there is the Minimum Alternate Tax. MAT, levied at 15 percent of book profits, was introduced specifically to prevent companies from engineering their way to zero tax liability through legitimate but aggressive deduction claims. It operates as a floor. A company that would otherwise pay nothing — or near nothing — must still pay MAT on what its accounts show as profit. Companies in the 115BAA and 115BAB regimes are carved out from this requirement, which is part of what makes those regimes attractive beyond just the lower headline rate.
Foreign companies and the dividend question
India’s treatment of foreign companies also shifted last year. The corporate rate for foreign entities was brought down from 40 percent to 35 percent, effective April 1, 2024, following amendments included in the Finance Act of that year. The reduction is notable, if not dramatic — income from royalties and technical service fees continues to attract 50 percent, preserving the long-standing distinction between operating profits and passive earnings routed through India.
Dividend taxation has followed a different arc. The Dividend Distribution Tax, once levied at the corporate level before distributions reached investors, was abolished. Dividends are now taxable in the hands of shareholders at their applicable rates. For promoters and institutions with large concentrated holdings, this has been a meaningful change in after-tax returns — regardless of whether the company’s own liability shifted.
The strategic weight of the decision
What makes the current structure consequential for businesses is not just the rate differential but the commitment it requires. Opting into 115BAA or 115BAB is not something a company can revisit month to month. The choice, once made for a financial year, holds. That means the calculation involves more than comparing numbers on a rate sheet — it requires a projection of future growth, anticipated capital investment, the value of specific exemptions, and the cost of restructuring accounting practices.
Tax planning in India, as a result, has migrated from a back-office function to something that sits closer to the boardroom. The regime a company chooses shapes what it can claim, how it reports, and ultimately what it pays. The government has, by design, made fiscal structure inseparable from business strategy.
Whether that is good policy or an unnecessary complication depends largely on whom you ask. Manufacturers setting up new plants tend to view the 15 percent option as a straightforward incentive. Established companies weighing 115BAA against their existing exemption claims often find the arithmetic less obvious. What is not in dispute is that India’s corporate tax system now demands active engagement — from companies, their advisors, and the analysts trying to make sense of what any given firm actually pays.
