Domestic Company Tax Rates: Complete Guide for FY 2025-26 & 2026-27

Domestic company tax rates in India are determined by the Central Board of Direct Taxes (CBDT), which sets specific income tax rates that all companies incorporated in India must follow. Every domestic company is required to calculate and pay income tax based on these prescribed rates, which vary depending on total turnover, chosen tax regime, and applicable surcharges.  This guide provides a comprehensive analysis of domestic company tax rates, surcharge implications, Health and Education Cess, Minimum Alternate Tax (MAT), and special tax regimes under Sections 115BA, 115BAA, and 115BAB for FY 2025-26 and FY 2026-27.

Definition of Domestic Company

A domestic company under Section 2(22A) of the Income Tax Act, 1961, is defined as:

• An Indian company incorporated in India, or
• Any other company which, in respect of its income liable to tax under the Act, has made the prescribed arrangements to declare and pay dividends within India, including dividends on preference shares.

This definition is significant, as it determines the applicability of tax rates, MAT, and eligibility for special tax regimes.

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Income Tax Rates for Domestic Companies

Income tax rates for domestic companies in India differ based on total turnover, opted tax regime, and the assessment year.

Assessment Year 2026-27

Assessment Year 2025-26

The concessional 25% tax rate for companies with turnover below Rs. 400 crore encourages smaller and mid-sized companies to maintain transparency and timely compliance.

Surcharge on Income Tax for Domestic Companies

Domestic companies are also subject to a surcharge, which is an additional levy on the base income tax. The surcharge rates vary depending on the total income and the chosen tax regime:

• 7% for total income exceeding Rs. 1 crore but not exceeding Rs. 10 crore.
• 12% for total income exceeding Rs. 10 crore.

Marginal Relief on Surcharge

To prevent overburdening companies due to progressive surcharges, marginal relief applies:

• If total income exceeds Rs. 1 crore but  ≤ Rs. 10 crore, the total payable (income tax + surcharge) shall not exceed the tax on Rs. 1 crore plus the excess income.
• If total income exceeds Rs. 10 crore, the total payable (income tax + surcharge) shall not exceed the tax on Rs. 10 crore plus the excess income.

For companies opting for Section 115BAA or 115BAB, the surcharge is a flat 10%, regardless of total income. This fixed surcharge simplifies tax computation and planning for companies under special regimes.

The impact of the surcharge can be significant for large companies, especially those exceeding the Rs. 10 crore threshold. Proper tax planning and regime selection can lead to substantial savings.

Health and Education Cess

In addition to income tax and surcharge, Health and Education Cess is levied at 4% of the sum of income tax and surcharge. This cess applies to all domestic companies without exception and contributes to national health and education initiatives.

Example Calculation:

• Total income: Rs. 12 crore
• Base tax (30%): Rs. 3.6 crore
• Surcharge (12%): Rs. 0.432 crore
• Health and Education Cess (4%): Rs. 0.16128 crore
• Total Tax Liability: Rs. 4.19328 crore

This demonstrates the additive impact of surcharge and cess on total tax liability.

Minimum Alternate Tax (MAT) for Domestic Companies

The Minimum Alternate Tax (MAT) ensures that domestic companies with high book profits cannot entirely avoid paying taxes by claiming exemptions.

• Standard MAT rate: 15% of book profit plus applicable surcharge and cess.
• For companies operating in International Financial Services Centres (IFSCs) and earning solely in convertible foreign exchange, MAT is 9% plus surcharge and cess.

MAT Applicability and Exceptions

• MAT is applicable when normal tax liability is less than 15% of book profit.
• Companies opting for Sections 115BAA or 115BAB are exempt from MAT, allowing them to benefit from lower corporate tax rates without triggering MAT provisions.
• Companies under Section 115BA do not receive MAT exemption.

By understanding MAT provisions, domestic companies can optimize their financial structure and tax planning strategies efficiently.

Special Tax Regimes for Domestic Companies

The Income Tax Act allows domestic companies to opt for special tax regimes, offering lower tax rates to incentivize reinvestment and profit declaration.

Section 115BA

• Tax rate: 25%
• MAT applies
• Surcharge: As per normal rules (7% or 12%)

Section 115BAA

• Tax rate: 22%
• Flat surcharge: 10%
• Exempt from MAT

Section 115BAB

• Tax rate: 15%
• Flat surcharge: 10%
• Exempt from MAT

Companies selecting these regimes must forego certain deductions and exemptions, but the overall tax savings often outweigh the benefits of these deductions. These options are ideal for new manufacturing companies or those seeking long-term tax certainty.

Turnover-Based Tax Concessions

Domestic companies with turnover or gross receipts ≤ Rs. 400 crore enjoy a 25% tax rate under the normal regime. This is designed to support small and medium-sized enterprises (SMEs) by reducing their tax burden and promoting compliance.

Companies exceeding this threshold are taxed at 30% under the standard regime. Choosing a special tax regime may still reduce this effective tax rate significantly.

Practical Example

Let’s assume a domestic company has a total income of Rs. 12 crore in FY 2025-26 and opts for normal taxation:

This analysis highlights the tax efficiency of special regimes, especially Section 115BAB, which can reduce tax liability by more than 50% compared to the standard rate for large companies.

Key Points to Consider

1. Turnover-based Tax Rate: Companies with turnover below Rs. 400 crore enjoy a concessional 25% tax rate.
2. Flat vs. Progressive Surcharge: Companies opting for 115BAA or 115BAB have a flat surcharge, while others follow progressive surcharge with marginal relief.
3. Health & Education Cess: Applies to all companies, ensuring funds for national health and education initiatives.
4. MAT Applicability: Encourages companies to pay a minimum level of tax even if exemptions reduce normal tax liability.
5. Special Regimes: Choosing between 115BA, 115BAA, or 115BAB depends on profitability, future growth plans, and exemption requirements.

Impact of Surcharge and Cess on Domestic Companies

Surcharge and Health & Education Cess significantly influence the effective tax rate for domestic companies:

• Companies exceeding Rs. 10 crore in total income face an effective increase of nearly 16–17% on their base tax under normal rules.
• Companies under Sections 115BAA or 115BAB benefit from a flat 10% surcharge, reducing complexity and improving predictability.
• Health & Education Cess applies uniformly and should be factored into cash flow planning.

Effective tax planning requires a detailed understanding of surcharge rules, marginal relief, and cess implications.

Conclusion

The domestic company tax rates for FY 2025-26 & 2026-27 provide multiple avenues for tax optimisation through standard rates, turnover-based concessions, and special regimes under Sections 115BA, 115BAA, and 115BAB. Understanding the surcharge on income tax for domestic companies, Health and Education Cess, and MAT provisions is essential for effective financial management.

By strategically selecting the appropriate tax regime, domestic companies can minimise tax liability, comply with statutory provisions, and reinvest savings to drive growth. Companies should consult tax professionals to align their corporate structure, accounting practices, and tax planning strategies with these regulations.

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