India Tax Regime

India taxes resident companies on worldwide income and non-residents on income received, accruing or deemed to accrue in India. The corporate tax has several tracks: domestic companies pay a 25% basic rate (turnover up to INR 4 billion) or 30%, foreign companies with a permanent establishment 35%, and concessional regimes offer 22% (without incentives) and 15% for new manufacturers — each increased by a surcharge and a 4% health-and-education cess, giving effective rates broadly between 17% and 38%. A minimum alternate tax (MAT) of 15% applies to companies remaining in the incentive-based regime. There are no state or local income taxes, but a nationwide GST and an extensive withholding-tax (TDS) system are central to collection.

Individuals are taxed under a default ‘new regime’ of broad slabs with few deductions, or an optional ‘old regime’ with deductions, both topped by surcharge and cess, and capital gains are taxed under a framework substantially redesigned in 2024. A company is resident if incorporated in India or if its place of effective management is in India.

1.1 Sources of law and treaties

The Income-tax Act, the Central and State GST Acts, the Customs Act and the annual Finance Acts govern the system, administered by the Central Board of Direct Taxes and the Central Board of Indirect Taxes and Customs. India has a very large treaty network and applies the OECD multilateral instrument; a new Income-tax Act, 2025, consolidating and modernising the direct-tax law, takes effect from the 2026/27 tax year.

1.2 Recent developments

The most consequential recent and pending changes are:

The new Income-tax Act, 2025, replacing the Income-tax Act, 1961, with effect from the 2026/27 tax year (a structural rewrite rather than a change of policy).

A redesigned capital-gains regime (from 23 July 2024): a 12.5% long-term rate (largely without indexation) and a 20% short-term rate on listed equity, with a higher annual exemption.

Revised personal ‘new regime’ slabs (Budget 2025) substantially raising the income level at which tax begins.

GST rate rationalisation toward fewer slabs, and the earlier reduction of the foreign-company rate to 35% and abolition of the equalisation levy on online advertising.

Headline statutory corporate income tax rate for a resident company. Where sub-national (state, provincial, cantonal or municipal) corporate taxes apply, the combined rate reported by the OECD is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

Top marginal statutory personal income tax rate on employment income for a resident individual. Where sub-national (state, provincial, cantonal or municipal) income taxes are a standard part of the system, the combined top rate is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

2.1 Residence and scope

A company is resident if it is incorporated in India or if its place of effective management (POEM) — the place where key management and commercial decisions are in substance made — is in India in the year. Residents are taxed on worldwide income; non-residents on Indian-source income, including income deemed to arise in India (such as income from a business connection, Indian assets, or, under the ‘significant economic presence’ and indirect-transfer rules, certain digital and offshore dealings).

2.2 Rates, surcharge and cess

Domestic companies pay a basic 25% (turnover up to INR 4 billion in the base year) or 30%, and foreign companies with a permanent establishment 35%. A surcharge (up to 12% for domestic and 5% for foreign companies, by income level) and a 4% health-and-education cess apply, giving effective rates up to about 34.9% (domestic) and 38.2% (foreign). There are no state or local income taxes.

2.3 The concessional 22% and 15% regimes

A domestic company may irrevocably elect a 22% basic rate (with a 10% surcharge and 4% cess, an effective rate of about 25.17%) under section 115BAA, provided it forgoes most incentives, accelerated/additional depreciation and brought-forward losses attributable to them — and is then outside MAT. A newly incorporated manufacturing company (set up after 1 October 2019 and commencing manufacture by the deadline) may elect a 15% basic rate under section 115BAB (effective about 17.16%), India's headline incentive for new industrial investment. Both regimes trade incentives for a low, stable rate.

2.4 Minimum alternate tax

Companies that remain in the incentive-based regime pay MAT at 15% of adjusted book profit where their normal tax is lower, ensuring profitable but lightly taxed companies contribute a minimum amount; a special 9% rate applies to units in an International Financial Services Centre. MAT credit can be carried forward and set off for fifteen years. Companies electing the 22% or 15% regimes are excluded from MAT.

2.5 Dividends

Since 2020, the dividend distribution tax has been abolished and dividends are taxed in the shareholder's hands at applicable rates, with the company deducting tax at source (broadly 10% for residents). Inter-corporate dividends benefit from a deduction to relieve cascading where the recipient on-distributes, and dividends to non-residents are taxed (with TDS) subject to treaty rates.

2.6 Income determination and interest limitation

Taxable income is computed under detailed heads of income with depreciation on a block-of-assets, written-down-value basis. Net interest paid to non-resident associated enterprises exceeding INR 10 million is limited, under section 94B, to 30% of EBITDA, with carryforward of disallowed interest for eight years (a thin-capitalisation-style rule). Specific disallowances apply for unpaid statutory dues, non-deduction of TDS, and certain related-party and cash transactions.

2.7 Losses

Business losses may be carried forward and set off for eight assessment years (unabsorbed depreciation indefinitely), subject to continuity-of-ownership tests for closely held companies and special rules for amalgamations and start-ups. Speculation and capital losses have their own set-off and carryforward rules.

2.8 Transfer pricing

India has one of the world's most developed transfer-pricing regimes: international and certain domestic related-party transactions must be at arm's length, with extensive documentation (including master file and country-by-country reporting), an accountant's report, and a heavily litigated audit practice. Advance pricing agreements (unilateral and bilateral) and a safe-harbour framework provide certainty, and a secondary-adjustment rule applies.

2.9 Incentives

Beyond the 15% manufacturing rate, India offers tax holidays and concessions for units in International Financial Services Centres (GIFT City) and Special Economic Zones, weighted deductions historically available for research and development, a start-up tax holiday, and production-linked incentive (PLI) schemes (which are grants rather than tax reliefs). The incentive landscape has narrowed as the headline rate fell, pushing companies toward the 22%/15% regimes.

2.10 Anti-avoidance and the GAAR

A general anti-avoidance rule (GAAR) allows the authorities to disregard ‘impermissible avoidance arrangements’ whose main purpose is a tax benefit and which lack commercial substance, alongside specific anti-avoidance provisions, the indirect-transfer rules (taxing transfers of shares deriving substantial value from Indian assets) and treaty anti-abuse measures. India is not a Pillar Two adopter at the time of writing, relying instead on its 22%/15%/30% rate structure and MAT.

3.1 Residence and the two regimes

Individuals are resident, resident-but-not-ordinarily-resident or non-resident under day-count tests; residents (ordinarily resident) are taxed on worldwide income. Tax is computed under a default ‘new regime’ of broad slabs (rising to 30%) with few deductions, or an optional ‘old regime’ with a lower exemption limit but extensive deductions and exemptions (such as for housing, insurance and provident-fund saving). A surcharge (up to 25% under the new regime; 37% under the old) and a 4% cess apply, and a rebate makes modest incomes effectively tax-free.

Indicative; slab thresholds are revised in the annual Budget. As-of June 2026.

3.2 Capital gains

Following the 2024 redesign, long-term capital gains are generally taxed at 12.5% (largely without indexation; an annual exemption applies to listed-equity gains), and short-term gains on listed equity subject to securities transaction tax at 20%, with other short-term gains taxed at slab rates. The holding period distinguishing long- and short-term varies by asset class, and grandfathering and roll-over reliefs (such as for residential property and specified bonds) apply.

3.3 Gifts, and the absence of wealth and inheritance taxes

India levies no inheritance or estate tax and no net wealth tax (the wealth tax was abolished in 2015). However, gifts of money or property above a threshold received without adequate consideration are taxed as income in the recipient's hands, subject to exemptions for gifts from relatives and on occasions such as marriage. Provident-fund and pension saving is tax-favoured within limits.

India operates an extensive tax-deduction-at-source (TDS) system. Payments to non-residents are commonly subject to: dividends 20%, interest 20% (with concessional 5% rates for certain external commercial borrowings and rupee bonds), and royalties and fees for technical services 20% — each increased by surcharge and cess and reduced by treaty (often to 10%–15%). A treaty claim requires a tax-residency certificate and prescribed declarations. Representative outcomes:

5.1 Source, pricing and financing

India's outbound and inbound framework rests on its broad source rules (business connection, significant economic presence and indirect transfers), the transfer-pricing regime (Section 2.8) and the section 94B interest limitation (Section 2.6). The POEM residence test and the indirect-transfer provisions (a legacy of the Vodafone dispute) extend India's reach to offshore structures with substantial Indian value.

5.2 GAAR, treaties and digital measures

The GAAR (Section 2.10) and specific anti-avoidance rules, the treaty principal-purpose test and limitation-on-benefits provisions, and a withholding/ reporting framework counter avoidance. India's earlier unilateral digital measures (the equalisation levy) have been wound back, and India remains an active participant in the OECD/G20 process while not yet implementing the Pillar Two minimum tax.

5.3 Foreign tax relief

Residents obtain relief for foreign tax by credit under treaties or unilaterally, limited to the Indian tax on the doubly taxed income and supported by a prescribed foreign-tax-credit form. India's wide treaty network allocates taxing rights and provides a mutual-agreement procedure, increasingly used alongside its advance-pricing-agreement programme.

6.1 Goods and services tax

GST is a destination-based, dual (central and state) value-added tax on the supply of goods and services, levied as CGST+SGST on intra-state supplies and IGST on inter-state and import supplies. Rates have historically run at 5%, 12%, 18% and 28% (with a compensation cess on demerit and luxury goods), and a 2025 rationalisation moved toward fewer slabs. Registration, input-tax-credit, e-invoicing and e-way-bill rules govern compliance, and certain petroleum products and alcohol remain outside GST.

6.2 Customs, stamp and other taxes

Customs duty (basic customs duty plus a social-welfare surcharge and IGST on imports) applies to imported goods, with free-trade-agreement and production-linked reliefs. Stamp duty (a state levy, with a harmonised regime for securities) applies to instruments and property transfers, and state-level property and profession taxes apply. A securities transaction tax applies to listed-securities trades.

6.3 Social security and other

Employer and employee contributions to the Employees' Provident Fund and Employees' State Insurance fund retirement and welfare benefits, and a social-security agreement network relieves double coverage for international assignees. There is no inheritance, estate or net wealth tax. Equalisation-levy and other minor levies have been progressively reduced.

7.1 Filing, advance tax and faceless assessment

Direct tax is self-assessed, with advance tax paid in quarterly instalments and tax deducted/collected at source throughout the year. Companies and audited taxpayers file income-tax returns by 31 October (with a tax-audit report), other taxpayers by 31 July, of the assessment year. India has moved to faceless (anonymised, electronic) assessment and appeal processes, and GST returns are filed monthly or quarterly with an annual return.

7.2 Rulings, audit and limitation

A Board for Advance Rulings provides rulings to non-residents and specified taxpayers, and the tax authorities conduct scrutiny assessments, surveys and search operations. Assessment and reassessment time limits depend on the nature and quantum of escaped income (with longer windows for serious or asset-based cases), and interest and penalties — including for under-reporting and misreporting — apply, mitigated by various amnesty and dispute-settlement schemes.

7.3 Disputes

A taxpayer appeals an assessment to the Commissioner (Appeals) and then the Income Tax Appellate Tribunal, with further appeal on questions of law to the High Court and the Supreme Court; a Dispute Resolution Panel route is available for transfer-pricing and foreign-company cases. The mutual-agreement procedure and advance-pricing agreements address cross-border double taxation, and a faceless appeal scheme applies at the first level.

Indicative deadlines. As-of June 2026.

9.1 Entity choice and residence

Inbound investment is typically held through an Indian private limited company or, for fund, financing and IP activity, through a unit in the GIFT City International Financial Services Centre; a branch, project or liaison office of a foreign company is taxed at the 35% foreign-company rate where it constitutes a taxable presence. The place-of-effective-management test, the indirect-transfer rules and the significant-economic-presence concept extend India's reach to offshore holding structures, making entry structuring important.

9.2 Choosing a corporate-tax regime

A domestic company must weigh the headline 25%/30% tracks (which retain incentives, brought-forward losses and MAT) against the concessional 22% regime (no incentives, no MAT) and, for new manufacturers, the 15% regime — an election that, once made, is irrevocable and governs all future years. This regime choice, together with the heavy withholding-tax (TDS) and advance-tax obligations, is the central feature of Indian corporate-tax planning.

9.3 A worked illustration

A domestic company on the 22% concessional regime with INR 100 million of profit pays a 22% basic tax plus a 10% surcharge and a 4% cess — an effective rate of about 25.17%, or roughly INR 25.17 million — and is outside MAT. A qualifying new manufacturer electing the section 115BAB regime would instead bear an effective rate of about 17.16%, the lowest corporate rate in the system.

9.4 Compliance and practical points

India's faceless assessment and appeal system, extensive TDS withholding, quarterly advance-tax instalments and one of the world's most litigated transfer-pricing regimes shape compliance, and the new Income-tax Act 2025 restructures the law from the 2026/27 year. Advance pricing agreements, the safe-harbour rules and the Dispute Resolution Panel provide cross-border certainty, and a tax-residency certificate is required to claim treaty relief.