The basis
Tax year 2026-27 is the first year under the Income-tax Act 2025, which replaced the Income-tax Act 1961 from 1 April 2026. Rates are set by the Finance Act 2026. The effective rate is worked out as:
effective rate = base rate × (1 + surcharge) × 1.04
The 1.04 factor is the 4% cess. Budget 2026-27 left corporate rates unchanged; only MAT was cut.
Rates for tax year 2026-27
| Taxpayer | Base rate | Surcharge | Effective rate |
|---|---|---|---|
| Indian company, concessional regime (s.200) | 22% | 10% at any income level | 25.168% |
| Indian company, normal regime | 30%, or 25% if FY2024-25 turnover was up to ₹400 crore | 7% above ₹1 crore; 12% above ₹10 crore | Up to 34.944% |
| Foreign company (branch or PE) | 35% | 2% above ₹1 crore; 5% above ₹10 crore | 36.40% up to ₹1 crore; 37.128% from ₹1–10 crore; 38.22% above ₹10 crore |
The concessional regime (s.200)
Any Indian company, including a foreign-owned subsidiary, may opt for the concessional regime. The trade-off is that most deductions and incentives are given up. In return, the rate is flat at 25.168% whatever the income level, and MAT does not apply.
Before deductions, 25.168% is below the normal-regime effective rate at every income level. A company should still model both regimes before opting, because most deductions are given up under s.200.
Minimum alternate tax (s.206)
MAT applies to companies on the normal regime. From tax year 2026-27:
- the rate falls to 14% of book profit, from 15%;
- MAT becomes a final tax for old-regime companies, so no new MAT credit arises from 1 April 2026;
- MAT credit built up to 31 March 2026 can be used only after the company moves to the new regime, and only up to 25% of that year’s tax (for domestic companies).
IFSC units pay MAT at 9% of book profit.
Branches and permanent establishments
A foreign company that operates in India through a branch, or that has a permanent establishment (PE) in India, is taxed at 35% plus surcharge and cess on its Indian income. That is materially higher than a subsidiary on the concessional regime, before considering dividend withholding on a subsidiary’s distributions. See entry vehicles for the comparison and transfer pricing for PE risk.
Closed and special regimes
15% regime for new manufacturing companies (s.201)
This regime is closed. Only companies that began manufacturing or production by 31 March 2024 qualify. Budget 2026-27 introduced no replacement.
Start-up tax holiday (s.140)
Eligible start-ups can deduct 100% of profits for any three consecutive years out of their first ten. The company or LLP must be incorporated before 1 April 2030 and hold an Inter-Ministerial Board certificate. The turnover limit is ₹300 crore from 1 April 2026.
GIFT City IFSC units (s.147)
From tax year 2026-27, IFSC units deduct 100% of eligible income for 20 consecutive years out of 25, up from 10 out of 15. Offshore banking units get 20 consecutive years. Budget 2026-27 proposed taxing IFSC business income at 15% after the deduction period, but the Finance Act 2026 did not enact it.
Foreign cloud companies using Indian data centres
A notified foreign company’s income from procuring data-centre services from a specified data centre in India is exempt to the tax year ending 31 March 2047. Conditions include serving Indian users only through an Indian reseller, not owning or operating the data centre, the operator being an Indian company, and prescribed filings.
Electronics supply chain
Foreign suppliers of tooling or capital goods to a contract manufacturer in a bonded area are exempt to tax year 2040-41. Income from bonded-warehouse components sold to such manufacturers is exempt from 1 October 2026 to 31 March 2041, with prescribed reporting.
Note: Budget 2026-27 also proposed decriminalising further income-tax defaults, such as non-production of books, with a fine only for minor offences.
What to check next
- Model the concessional and normal regimes side by side for the first five years, including any deductions that would be lost.
- If the company has MAT credit from before 1 April 2026, work out when moving regime lets it be used and the 25% annual cap.
- Check whether any foreign group company is creating a branch or PE in India that would be taxed at the higher foreign company rate.
- For data-centre, IFSC or electronics supply-chain structures, confirm that the notification and filing conditions are met before relying on the exemption.
- Read the new section numbers in the Income-tax Act 2025 guide when updating group tax manuals.