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INDEX
  •  Tax on Income
  • Corporate Income Tax (CIT) Rates
  • Minimum Alternate Tax (MAT)
  • Surcharge and Cess
  • Tax Benefits and Incentives
  • Double Taxation Relief
 
 

Taxation of Domestic vs. Foreign Companies in India

Summary Table

Aspect

Domestic Companies

Foreign Companies

Tax on Income

Taxed on global income

Taxed on India-sourced income

CIT Rates

25% or 30%, depending on turnover; lower rates for certain sectors

Typically 40% on India-sourced income

MAT

Subject to MAT if book profits exceed certain limits

MAT applicable if PE in India

Surcharge and Cess

7%/12% surcharge + 4% cess

2%/5% surcharge + 4% cess

Tax Incentives

Eligible for various tax benefits (e.g., for manufacturing, startups)

Fewer incentives, but may benefit from DTAAs

Double Taxation Relief

No relief needed for foreign income

Eligible for relief under DTAAs

Tax on Income
  • Domestic Companies:
    • A domestic company is taxed on its global income, i.e., income earned both within India and abroad.
    • This includes income from all sources, including business, investments, and capital gains.
  • Foreign Companies:
    • A foreign company is taxed only on income that is either:
      • Received in India, or
      • Acrues/arises in India, or
      • Deemed to accrue or arise in India (e.g., income from business operations in India, or income from Indian assets).
    • Foreign companies are typically taxed on India-sourced income.
Corporate Income Tax (CIT) Rates
  • Domestic Companies:
    • Tax rates for domestic companies depend on their turnover, with a base CIT rate of 25% or 30% (depending on turnover thresholds), subject to applicable surcharge and health & education cess.
    • Reduced rates may apply for certain businesses (e.g., manufacturing or electricity generation).
  • Foreign Companies:
    • Foreign companies operating in India are taxed at a base rate of 40% on their income from Indian sources.
    • Like domestic companies, foreign companies may also face additional surcharges and cess, which can increase the effective tax rate.

Note: The rates for foreign companies with a Permanent Establishment (PE) in India are similar to those of domestic companies, but non-resident companies without a PE are only taxed on their income derived from India.

For more Details Click here Corporate Tax in India

Minimum Alternate Tax (MAT)
  • Domestic Companies:
    • Domestic companies are subject to MAT if their tax liability under the regular provisions is lower than a prescribed percentage (currently 15%) of their adjusted book profits.
    • MAT is a form of minimum tax that ensures companies pay a minimum amount of tax, even if their taxable income is low.
  • Foreign Companies:
    • Foreign companies without a PE in India are not subject to MAT.
    • However, foreign companies with a PE in India are subject to MAT on their book profits, similar to domestic companies, at the applicable rate.

For more details Click Here Minimum Alternate Tax (MAT)

Surcharge and Cess
  • Both domestic and foreign companies are subject to surcharge and health & education cess based on their total income.
    • For domestic companies: Surcharge rates range from 7% to 12% depending on income thresholds.
    • For foreign companies: Surcharge rates range from 2% to 5% depending on income thresholds.

Health & Education Cess: A uniform cess of 4% is applicable on the total tax liability for both domestic and foreign companies.

Tax Benefits and Incentives
  • Domestic Companies:
    • Domestic companies may benefit from specific tax incentives or lower tax rates for certain activities, such as new manufacturing units, startups, and specific industries (e.g., electricity generation).
    • Reduced tax rates (e.g., 22% or 15% for new manufacturing units) may be available under certain conditions.
  • Foreign Companies:
    • Foreign companies generally do not have the same incentives as domestic companies.
    • However, foreign companies engaged in specific sectors (e.g., shipping, mineral oil exploration) may be eligible for tax exemptions or favorable tax provisions under the Income-tax Act.
Double Taxation Relief
  • Domestic Companies:
    • Domestic companies do not face double taxation on income earned abroad. However, income earned abroad is subject to Indian tax.
  • Foreign Companies:
    • Foreign companies may be eligible for relief under Double Taxation Avoidance Agreements (DTAAs) between India and other countries. These agreements help avoid double taxation of income by providing tax credits or exemptions for taxes paid in the foreign country.

For more details on Double Tax Avoidance Agreement (DTAA)

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