Taxation of Domestic Company (Assessment Year 2025-26) TAX CONCEPT

Taxation of Domestic Companies in India (Assessment Year 2025-26)

New Delhi, India – Domestic companies in India are subject to a multi-layered tax structure, offering a choice between a regular tax regime with various deductions and concessional tax regimes with lower flat rates but fewer benefits. For the Assessment Year (AY) 2025-26, corresponding to the Financial Year (FY) 2024-25, the corporate tax landscape continues to provide these options to optimize tax outflow.

I. Income Tax Regimes and Rates

Domestic companies have the flexibility to choose from the following tax regimes:

1. Regular Tax Regime:

Under this regime, companies are taxed at a graded rate based on their turnover and can avail a wide range of deductions and exemptions provided under the Income Tax Act, 1961.

Particulars	Tax Rate
If the total turnover or gross receipts in the previous year 2022-23 does not exceed ₹400 crore	25%
Any other domestic company	30%

2. Concessional Tax Regimes:

To boost investment and manufacturing, the government has introduced two concessional tax regimes with lower flat tax rates. Companies opting for these regimes must forego certain deductions and exemptions.¹

Section 115BAA: Concessional Tax Rate for all Domestic Companies:
- Tax Rate: A flat rate of 22% is applicable.
- Conditions: To avail this rate, the company must not claim specified deductions and exemptions, including those under Section 10AA (for SEZ units), additional depreciation, and various deductions under Chapter VI-A (like 80-IA, 80-IB, etc.), with the exception of Section 80JJAA (for new employment) and Section 80M (for inter-corporate dividends).
- MAT: Companies opting for this regime are exempt from the Minimum Alternate Tax (MAT).²
Section 115BAB: Concessional Tax Rate for New Manufacturing Companies:
- Tax Rate: An even lower flat rate of 15% is offered to new domestic manufacturing companies.³
- Conditions: This is subject to several conditions, including that the company must be set up and registered on or after October 1, 2019, and has commenced manufacturing or production on or before March 31, 2024.⁴ The company should not be formed by the splitting up or reconstruction of an existing business and must not use any plant or machinery previously used for any purpose (with certain exceptions).⁵ Similar to Section 115BAA, a list of deductions and exemptions cannot be claimed.
- MAT: These companies are also exempt from MAT.⁶

II. Surcharge and Health & Education Cess

In addition to the basic income tax, a surcharge and cess are levied:

Surcharge:

For companies under the Regular Regime:
- 7% of the income tax if the total income exceeds ₹1 crore but does not exceed ₹10 crore.
- 12% of the income tax if the total income exceeds ₹10 crore.
For companies opting for Concessional Regimes (Section 115BAA and 115BAB):
- A flat surcharge of 10% of the income tax is levied, irrespective of the total income.

Health and Education Cess:

A cess at the rate of 4% is levied on the amount of income tax plus the applicable surcharge.

III. Minimum Alternate Tax (MAT)

For companies that opt for the regular tax regime, the provisions of Minimum Alternate Tax (MAT) are applicable.

Rate: MAT is levied at the rate of 15% of the company’s book profit, plus applicable surcharge and cess.⁷
Applicability: A company is required to pay the higher of the normal tax liability (calculated as per the regular provisions) or the MAT.
MAT Credit: If a company pays MAT, the excess of MAT paid over the normal tax liability can be carried forward and set off against the normal tax liability in subsequent years, up to a maximum of 15 assessment years.⁸
Exemption: As mentioned earlier, companies opting for the concessional tax regimes under Section 115BAA and Section 115BAB are not liable to pay MAT.⁹

IV. Taxation of Dividends

The Dividend Distribution Tax (DDT) has been abolished.¹⁰ The taxation of dividends for the AY 2025-26 is as follows:

Dividend Received by a Domestic Company: Dividend received from another domestic company is taxable in the hands of the recipient company at the applicable corporate tax rates.
Deduction under Section 80M: To avoid the cascading effect of taxes, a crucial deduction is available under Section 80M of the Income Tax Act.¹¹ A domestic company receiving a dividend from another domestic company can claim a deduction for the amount of such dividend, to the extent that it is further distributed as a dividend to its own shareholders on or before the due date of filing the income tax return.
Dividend Distributed by a Domestic Company: When a domestic company distributes a dividend to its shareholders, it is required to deduct Tax at Source (TDS) under Section 194. The tax is levied on the shareholders at their respective applicable income tax rates.

V. Common Deductions under the Regular Tax Regime

Companies opting for the regular tax regime can claim various deductions to reduce their taxable income.¹² Some of the significant deductions include:

Depreciation: As per Section 32 of the Income Tax Act.
Expenditure on Scientific Research: Under Section 35.
Capital Expenditure: Certain specified capital expenditures are allowed as a deduction.¹³
Preliminary Expenses: Deduction available under Section 35D.
Donations: Donations to eligible institutions and funds can be claimed as a deduction under Section 80G.¹⁴
Deduction in respect of employment of new employees: Under Section 80JJAA.
Profit-linked deductions: For certain businesses like infrastructure development (Section 80-IA), development of Special Economic Zones (Section 80-IAB), etc., subject to specified conditions and timelines.
Interest on borrowed capital: For business purposes.
Other business expenditures: All revenue expenditures incurred wholly and exclusively for the purpose of business are allowed as a deduction, provided they are not of a capital or personal nature.

VI. Due Dates for Filing of Income Tax Return (AY 2025-26)

For a domestic company, the due date for filing the income tax return for the Assessment Year 2025-26 is October 31, 2025, as their accounts are required to be audited under the Income Tax Act.

It is important for companies to carefully evaluate the choice between the regular and concessional tax regimes based on their business model, profitability, and the quantum of deductions and exemptions they are eligible for, to ensure optimal tax compliance and planning.