Advanced Direct Tax Laws and Practice · Computation of Total Income, Tax Liability and Filing of Return of Companies

Tax Rates and Tax Liability of Companies

Updated 11 October 2026 · Fact-checked

A company's tax liability is its total income multiplied by the applicable rate, plus surcharge (if income crosses the thresholds), plus 4% health and education cess. Domestic companies pay lower rates than foreign companies, and may opt for a concessional regime that gives a lower rate in exchange for giving up certain deductions and MAT.

Understand Tax Rates and Tax Liability of Companies

Tax on a company starts with its total income. The rate you apply depends on one question first: is the company a domestic company or a foreign company? A domestic company is an Indian company, or any other company that has made the prescribed arrangements for declaring and paying dividends in India. A foreign company is any other company, usually one incorporated abroad.

Domestic companies are taxed at a flat rate, not at slabs. The normal rate is 30%. A lower rate of 25% applies if the company's turnover or gross receipts in the earlier year specified in the Act stay within the stated limit (₹400 crore in the latest limit you will have studied). Check the limit and the year in the Act text you are given. Foreign companies are taxed at a higher flat rate, 35% on ordinary income. Special rates apply to certain income such as capital gains and some royalty and fees for technical services, so always separate special-rate income from the rest.

There is also an optional concessional regime for domestic companies. If the company opts in, it pays a lower rate (22% for the regime you are most likely to be tested on), with a flat surcharge of 10% and no Minimum Alternate Tax. The price is that it gives up many deductions and exemptions, and generally cannot set off brought forward losses or depreciation attributable to those deductions. The option, once exercised, generally cannot be withdrawn. Read the conditions in the question carefully before choosing.

After tax on income comes surcharge, which is a percentage of the tax and applies only above income thresholds. For domestic companies under the normal regime it is 7% where total income exceeds ₹1 crore up to ₹10 crore, and 12% above ₹10 crore. For foreign companies it is 2% and 5% at the same thresholds. Marginal relief stops the extra tax and surcharge from exceeding the extra income above the threshold. Finally, health and education cess of 4% is added on tax plus surcharge.

A note from the buyback rules. Under section 69, when a company buys back its own shares, the shareholder is taxed on capital gains: the difference between cost of acquisition and the consideration received. Where the buyback is under section 68 of the Companies Act, 2013 and the shareholder is a promoter, an additional income-tax applies on those gains. The rates are 2% (short-term) and 9.5% (long-term) where the promoter is a domestic company, and 10% and 17.5% for other promoters. Rates can change with each Finance Act, so confirm them against the text supplied in the exam.

Key rules to remember

Basic tax, domestic company (normal regime): Tax = 30% × total income (25% if turnover or gross receipts are within the specified limit); Flat rate. Carve out special-rate income such as capital gains first.
Concessional regime for domestic company: Tax = 22% × total income; surcharge = 10% of tax; cess = 4%; Only if the company opts in. No MAT and restricted deductions. Check the conditions given in the question.
Foreign company: Tax = 35% × total income (ordinary income); Special rates apply to specific incomes. Surcharge is 2% above ₹1 crore up to ₹10 crore and 5% above ₹10 crore.
Surcharge, domestic company (normal regime): 7% if income > ₹1 crore up to ₹10 crore; 12% if income > ₹10 crore; Applied on income-tax, not on income. Not applicable up to ₹1 crore.
Cess: Cess = 4% × (tax + surcharge); Charged after surcharge and marginal relief.
Final tax liability: Liability = tax + surcharge − marginal relief + cess, then less credits (advance tax, TDS, MAT credit where allowed); Marginal relief applies only when income is just above a surcharge threshold.
Promoter buyback additional tax (section 69(2)): Short-term: 2% (domestic company promoter), 10% (other promoter); Long-term: 9.5% (domestic company promoter), 17.5% (other promoter); Only where the buyback is under section 68 of the Companies Act, 2013 and the shareholder is a promoter. It is on top of normal tax on those gains.

How to solve Tax Rates and Tax Liability of Companies questions

Use the same order every time. It keeps you from missing a rate, a surcharge band or the cess, and it matches how examiners allot marks.

1Classify the company: domestic or foreign. Look for words such as incorporated in India or place of effective management.
2If domestic, check whether it has opted for the concessional regime. If the question says it has, check the conditions and adjust income for disallowed deductions.
3Split total income into normal-rate income and special-rate income, such as capital gains.
4Apply the rate: 30% or 25% for a domestic company under the normal regime, 22% under the concessional regime, 35% for a foreign company, and the special rates on the special-rate income.
5Add surcharge according to total income, using the correct band for the type of company and regime. Check marginal relief if income is just above ₹1 crore or ₹10 crore.
6Add 4% cess on tax plus surcharge.
7Check MAT if the normal regime applies, and take the higher of regular tax and MAT.
8Deduct advance tax, TDS and other credits to state the net payable or refundable amount, and round off as the question requires.

Quickest way: Rate, surcharge band, cess in one pass

When to use it: Use when the question gives you total income and asks only for tax liability, with no complex adjustments.

Write the company type and regime in one line, for example: domestic, 22% regime.
Write the multiplier: tax × (1 + surcharge rate) × 1.04.
For 22% regime: tax × 1.10 × 1.04 = tax × 1.144.
Compute tax first, then multiply. Show tax, surcharge and cess on separate lines so partial marks are safe.
Test the income against ₹1 crore and ₹10 crore before choosing the surcharge rate.

Common mistakes in Tax Rates and Tax Liability of Companies

Applying 30% to every domestic company without checking the concessional regime or the 25% limit.
Students memorise one headline rate.
Fix: Always read turnover details and the regime option in the question before choosing the rate.
Charging surcharge on income instead of on tax.
Surcharge sounds like a levy on income.
Fix: Surcharge is a percentage of the income-tax. Compute tax first, then multiply by the surcharge rate.
Using the normal-regime surcharge (7% or 12%) for a company under the concessional regime.
Surcharge bands are remembered separately from the regime.
Fix: Under the 22% concessional regime the surcharge is a flat 10%. Link the surcharge to the regime in your notes.
Charging cess on tax only, before surcharge.
Students stop after adding surcharge to the tax.
Fix: Cess is 4% of tax plus surcharge, as the last step.
Charging MAT on a company that has opted for the concessional regime, or ignoring MAT under the normal regime.
MAT is treated as a separate topic.
Fix: The concessional regime removes MAT. Under the normal regime, compare regular tax with MAT and pay the higher.
Ignoring marginal relief when income is slightly above ₹1 crore or ₹10 crore.
Students apply the higher surcharge mechanically.
Fix: Check that tax plus surcharge does not exceed tax at the threshold plus the income above the threshold. If it does, the excess is relief.

Worked examples

Example 1

Gamma Industries Ltd, a domestic company, has opted for the concessional 22% regime. Its total income is ₹12,00,00,000, and it has no special-rate income. Compute its tax liability including surcharge and cess.

Show the solution

Company type: domestic, concessional regime, so the rate is 22%.
Tax = 22% × ₹12,00,00,000 = ₹2,64,00,000.
Surcharge under this regime is a flat 10%: 10% × ₹2,64,00,000 = ₹26,40,000.
Tax plus surcharge = ₹2,64,00,000 + ₹26,40,000 = ₹2,90,40,000.
Cess = 4% × ₹2,90,40,000 = ₹11,61,600.
Total = ₹2,90,40,000 + ₹11,61,600 = ₹3,02,01,600.
MAT does not apply under this regime, and the surcharge is flat, so there is no marginal relief step.

Answer: Tax liability = ₹3,02,01,600 before credits for advance tax and TDS.

Example 2

Delta Holdings Inc., a foreign company, has total income of ₹5,00,00,000 from business in India, taxable at the normal foreign company rate of 35%. Compute its tax liability.

Show the solution

Company type: foreign, so the rate is 35%.
Tax = 35% × ₹5,00,00,000 = ₹1,75,00,000.
Income exceeds ₹1 crore but not ₹10 crore, so surcharge is 2%: 2% × ₹1,75,00,000 = ₹3,50,000.
Tax plus surcharge = ₹1,78,50,000.
Marginal relief check: the extra income above ₹1 crore is ₹4,00,00,000, far more than the extra tax, so no relief is available.
Cess = 4% × ₹1,78,50,000 = ₹7,14,000.
Total = ₹1,78,50,000 + ₹7,14,000 = ₹1,85,64,000.

Answer: Tax liability = ₹1,85,64,000 before credits for TDS or advance tax.

Exam tips

Write company type, regime and rate as your first line. Examiners award marks for classification even if arithmetic slips.
Show tax, surcharge, marginal relief and cess on separate lines in a vertical computation.
If the question gives rates in the supplied text, use those and not the rates in your memory. Rates change by Finance Act.
For advice-type questions, compare the concessional regime with the normal regime, taking MAT, lost deductions and brought forward losses into account, then give a clear recommendation.
For buyback questions, say who is taxed (the shareholder), on what (capital gains), and whether the promoter additional tax applies.

Practice questions from Computation of Total Income, Tax Liability and Filing of Return of Companies

Tax Rates and Tax Liability of Companies in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CS ExecutiveTax Rates and Special Regimes for Companies

Tax Rates and Tax Liability of Companies: frequently asked questions

What is the difference between the tax rate for a domestic company and a foreign company?

A domestic company is taxed at 30%, or 25% where the turnover condition is met, or at a lower concessional rate if it opts in. A foreign company is taxed at a higher flat rate, 35% on ordinary income. Surcharge bands are also lower for foreign companies.

Should a company always opt for the concessional tax regime?

No. The lower rate comes at the cost of many deductions and the right to certain loss and depreciation set-offs. A company with large deductions or brought forward losses may pay less under the normal regime.

How is cess calculated on company tax?

Cess is 4% of the sum of income-tax and surcharge. It is calculated after any marginal relief and is added last.

Does the promoter additional tax apply to every buyback?

No. Under section 69(2), it applies where the company buys back under section 68 of the Companies Act, 2013 and the shareholder is a promoter. It is charged in addition to the normal tax on the capital gains.