1. Introduction

The corporate tax landscape in India for Assessment Year 2025-26 (FY 2024-25) features a structured approach that balances competitive tax rates with compliance rigor. Domestic companies must carefully analyze tax slabs, concessional regimes, surcharge, health and education cess, and Minimum Alternate Tax (MAT) to optimize their tax obligations.

This guide provides an in-depth overview designed to assist business owners, tax professionals, and finance teams in understanding and applying corporate tax provisions effectively. Through detailed explanations, statutory references, and practical case studies, it empowers companies to make informed tax planning decisions.

2. Definition of Domestic Company & Residency Rules

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

• Incorporated in India; or
• Formed outside India but has its control and management wholly situated in India (residency as per Section 6).

Domestic companies are subject to taxation on their worldwide income, distinguishing them from foreign companies taxed only on India-sourced income.

Identification of residency impacts which tax provisions apply, including eligibility for concessional tax regimes and applicability of minimum alternate tax.

3. Overview of Corporate Tax Regime in India for AY 2025-26

Corporate taxation in India involves multiple components that scale based on turnover, income level, and tax regime opted:

• Corporate Tax Rate: Basic tax on taxable income; rates differ for smaller companies and those opting for sections 115BA, 115BAA, or 115BAB.
• Surcharge: Additional percentage on income tax for companies with income exceeding ₹1 crore and ₹10 crore thresholds.
• Health and Education Cess: A flat 4% levy on the total of tax plus surcharge, contributing to social sector funding.
• Minimum Alternate Tax (MAT): Ensures minimum tax payment based on book profits to counter situations where taxable income is low due to deductions.

4. Corporate Tax Rates for AY 2025-26

The Income Tax Department has prescribed the following tax rates for domestic companies based on turnover and the opted tax regime:

These rates form the base on which surcharge and cess are levied, impacting the effective tax rate payable by the company.

Understanding Tax Regimes:

• Section 115BA: Allows companies to pay tax at 25% without most exemptions or incentives.
• Section 115BAA: Reduced tax rate of 22% with similar restrictions but no MAT applicability.
• Section 115BAB: Lowest tax rate of 15% for eligible new manufacturing entities, promoting sectoral growth.

5. Surcharge and Marginal Relief

Surcharge is an additional tax on the calculated income tax, varying by taxable income levels:

Marginal Relief: This relief applies to ensure that surcharge payable does not exceed the excess income above the threshold that triggers surcharge liability. It prevents disproportionate surcharge payment on marginally exceeding incomes.

6. Health and Education Cess: Calculation and Impact

This is a 4% cess levied on the sum of income tax and surcharge. It funds government healthcare and educational initiatives. Although seemingly modest, cess can increase the total tax outgo by a significant margin.

7. Minimum Alternate Tax (MAT): Applicability and Computation

The MAT provisions ensure companies contribute a minimum level of tax irrespective of exemptions or deductions under normal tax provisions.

• MAT Rate: 15% of Book Profit (plus applicable surcharge and cess).
• Applicable to all domestic companies except those opting for Sections 115BAA and 115BAB, who are exempt.
• For companies operating from International Financial Services Centres (IFSC) and earning solely in convertible foreign exchange, MAT rate is 9%.

Book profit is calculated per the Companies Act provisions, adjusted under IT rules.

8. Income Tax Return (ITR) Forms and Filing Procedures

Timely filing is mandatory to avoid penalties and comply with legal provisions. Companies must also maintain adequate documentation like audited financial statements, TDS certificates, and advance tax payment proofs.

9. Detailed Explanation of Sections 115BA, 115BAA, and 115BAB

Section 115BA

– Corporate tax rate capped at 25%.
– Companies surrender most exemptions and incentives.
– MAT provisions remain applicable.
– Useful for companies seeking simplified taxation but willing to forego deductions.

Section 115BAA

– Introduced to offer reduced tax rate of 22%.
– MAT is not applicable.
– Companies lose eligibility for most deductions under chapters like VI-A.
– Deductions for employee cost under 80JJAA and for dividend income under 80M are allowed.
– Companies must irrevocably opt in at the time of filing returns.

Section 115BAB

– Special concessional rate of 15% plus surcharge and cess.
– Available only to new manufacturing companies incorporated on or after 1 October 2019.
– Qualifying companies must commence manufacturing operations within prescribed timelines.
– Exemption from MAT.
– Restrictions similar to 115BAA on exemptions and deductions.
– Encourages fresh manufacturing investments in India.

10. Tax Deductions, Allowances & Incentives for Domestic Companies

While concessional tax regimes restrict many deductions, companies under the normal regime can avail several benefits:

• Section 80G: Deduction for donations to charitable institutions.
• Section 80JJAA: Deduction for additional employee cost on new employment.
• Section 80M: Deduction for dividend income from other domestic companies.
• Deductions for infrastructure, SEZ units, and newly established businesses.
• Depreciation allowances under Income Tax Rules on fixed assets.
• Special deductions for eligible startups (Section 80IAC).

Companies opting for 115BAA/115BAB generally cannot claim most of these deductions, except limited ones such as 80JJAA and 80M.

11. Comprehensive Case Studies with Detailed Calculations

12. Corporate Tax Planning Strategies for AY 2025-26

• Evaluate Tax Regime Options: Analyze turnover and income structure annually to select the most beneficial tax regime.
• Utilize Loss Carry Forward: Maximize offsetting losses before switching to concessional regimes which disallow set-offs.
• Strategically Claim Deductions: Use deductions like 80JJAA and 80M if eligible before opting for concessional rates.
• Optimal Capital Expenditure Timing: Plan acquisition of assets to claim maximum depreciation benefits.
• Dividend Planning: Time dividend declarations considering Dividend Distribution Tax (if applicable) and distribution rules.
• Maintain Accurate Books and Records: Organized financials assist in hassle-free audits and compliance adherence.

13. Compliance Requirements and Documentation

Companies must maintain compliance rigor spanning:

• Books and records as per Companies Act, 2013 and Income Tax Act, 1961.
• Filing tax audit reports and statutory audit where applicable.
• Submitting income tax returns using correct ITR forms electronically with DSC.
• Timely payment of advance tax in installments as per income projections.
• Preserving documents supporting expenses, deductions, and capital asset transactions.

14. Recent Legislative Amendments and Their Impacts

The Income Tax (No. 2) Bill, 2025, introduced significant changes:

• Consolidation of income tax laws with clearer language.
• Simplification through reduced compliance burdens for small and medium companies.
• Relaxation and extension of timelines for certain filings.
• Further clarity on concessional tax regime applicability.
• Abolition of angel tax for startup funding incentives.

Companies should stay updated through CBDT notifications and legal advisories.

15. Frequently Asked Questions (FAQs)

16. Conclusion

Corporate taxation for domestic companies in AY 2025-26 requires in-depth understanding of turnover-based tax rates, surcharge, education cess, and MAT provisions, alongside the choice of optimized concessional tax regimes. Planning, compliance, and proper documentation are crucial to minimizing tax liabilities while avoiding penalties.

Leveraging this comprehensive guide, companies can confidently approach their tax obligations and optimize financial strategies. However, personalized advice from tax professionals is recommended for complex or unique financial situations.