Manufacturer-specific provisions
General corporate tax is covered under corporate tax. These are the provisions specific to manufacturers, including the Budget 2026-27 changes.
Bonded manufacturing (MOOWR), Customs Act s.65
Manufacture in a customs-bonded unit with import duty on capital goods and inputs deferred. It is a deferment, not an exemption: duty and GST become payable on clearance to the domestic market, and duty on imported inputs is remitted on export. The unit needs a warehouse licence under s.58 and permission under s.65 of the Customs Act 1962 from Customs (CBIC) before duty-deferred imports begin: see regulators and registrations.
Toll manufacturing in bonded zones: electronics
A foreign company supplying capital goods, equipment or tooling to a toll manufacturer of electronic goods in a bonded zone is exempt from income tax, subject to conditions. Budget 2026-27 provided the exemption for five tax years from 1 April 2026; the Taxation and Other Laws (Amendment) Act 2026 extended it to the tax year ending 31 March 2041.
Component warehousing for electronics, to 31 March 2041
Foreign companies’ income from selling components stored in a customs-bonded warehouse to Indian contract manufacturers of specified electronic goods (phones, laptops, servers, wearables) is exempt from 1 October 2026 to 31 March 2041, subject to prescribed reporting.
Customs changes in Budget 2026-27
Exemptions were removed on items made in India or with negligible imports, and effective rates moved into the tariff. Budget 2026-27 also announced basic customs duty exemptions for capital goods used to process critical minerals and for specified microwave-oven parts.
SEZ units: one-time domestic sales
As a one-time measure, eligible SEZ manufacturing units may sell into the domestic tariff area at concessional duty, limited to a prescribed proportion of their exports (Budget 2026-27).
Check: Confirm that the SEZ rule change has been notified before planning domestic sales from an SEZ unit around it.
GST: two main rates from 22 September 2025
The GST Council approved a standard rate of 18% and a merit rate of 5%, with a 40% de-merit rate for a few goods, effective 22 September 2025 (56th GST Council, 3 Sep 2025). Air conditioners, dishwashers and televisions above 32 inches moved from 28% to 18%. Tobacco products were initially kept on earlier rates and compensation cess. Low-risk applicants can opt for automated GST registration within three working days. See GST and customs.
Sources: Budget Speech 2026-27, paras 132–133 and 145–158; SCC Online, 7 Aug 2026; India Briefing, 19 Aug 2026; Mumbai Customs Zone I, MOOWR note; PIB, GST Council 56th meeting, 3 Sep 2025.
Corporate tax at a glance
Rates for tax year 2026-27, the first year under the Income-tax Act 2025, which replaced the 1961 Act from 1 April 2026. Effective rates add surcharge and the 4% health and education cess. Treaty rates can be lower where treaty conditions are met. Effective rate = base rate × (1 + surcharge) × 1.04.
| Tax | Rate or rule | Note |
|---|---|---|
| Corporate tax: concessional regime (s.200) | 22% + 10% surcharge + 4% cess = 25.168% effective, whatever the level of income | Optional for any Indian company, including a foreign-owned subsidiary. Most deductions and exemptions are given up; MAT does not apply. |
| Corporate tax: normal regime | 30%, or 25% if turnover in FY2024-25 was up to ₹400 crore. Surcharge 7% on income above ₹1 crore, 12% above ₹10 crore; 4% cess | Top effective rate 34.944% (30% band). Deductions and incentives remain available, but MAT applies. |
| Foreign company: branch or permanent establishment | 35% on income other than special-rate income. Surcharge 2% on income above ₹1 crore, 5% above ₹10 crore; 4% cess | Effective 36.40% (income up to ₹1 crore), 37.128% (₹1–10 crore), 38.22% (above ₹10 crore). |
| Minimum alternate tax (MAT, s.206) | 14% of book profit (was 15%) from tax year 2026-27; a final tax for companies in the old regime, with no new MAT credit | Credit built up to 31 March 2026 is usable only after moving to the new regime, up to 25% of the year’s tax (domestic companies). |
| 15% regime for new manufacturing companies (s.201) | Closed to new entrants: only companies that began manufacturing or production by 31 March 2024 qualify | Budget 2026-27 left corporate tax rates unchanged (only the MAT rate was cut) and added no replacement regime; new manufacturers compare s.200 with the normal regime. |
| Dividends paid to a non-resident parent | 20% withholding under domestic law, plus surcharge and cess | Taxed in the shareholder’s hands. Treaties can reduce withholding on dividends, interest, royalties and technical fees, subject to treaty conditions. |
The practical choice for a new foreign-owned manufacturer is between the 25.168% concessional regime, which gives up most deductions, and the normal regime, which keeps deductions and incentives but attracts MAT at 14%. The 15% manufacturing regime is no longer available to a company that began production after 31 March 2024.
Withholding, capital gains, buy-backs and transfer pricing
Domestic-law rates for tax year 2026-27, before surcharge and cess unless stated. The applicable treaty may reduce withholding where its conditions are met.
| Tax | Rate or rule | Note |
|---|---|---|
| Royalties and fees for technical services | 20% on payments to a foreign company, plus surcharge and cess | A lower treaty rate may apply, subject to treaty conditions. |
| Capital gains of non-residents: listed shares | Short-term (s.196): 20%. Long-term (s.198): 12.5% on gains above ₹1.25 lakh | Plus surcharge and cess. Treaty exemptions are open to challenge under GAAR (Tiger Global, January 2026). |
| Capital gains of non-residents: unlisted shares | Long-term: 12.5%. Short-term: at the rate for other income, 35% for a foreign company | Plus surcharge and cess; treaty relief subject to treaty conditions. |
| Share buy-backs | Taxed as capital gains in the shareholder’s hands from 1 April 2026, no longer as dividend | Promoters pay an additional tax on buy-backs under s.68 of the Companies Act 2013. It takes long-term gains, and short-term gains on listed shares, to 22% where the promoter is an Indian company and 30% for any other promoter, including a foreign parent (before surcharge and cess). |
| GST (from 22 September 2025) | Two main rates, 5% (merit) and 18% (standard), plus 40% for a select few goods and services | Approved by the 56th GST Council on 3 September 2025. Tobacco products were initially kept on earlier rates and compensation cess. |
| Transfer-pricing safe harbour: IT services | 15.5% operating margin on cost for software, ITeS, KPO and contract R&D, for taxpayers within the ₹2,000 crore eligibility threshold (raised from ₹300 crore) | Budget 2026-27; notified with the 2026 rules. Approval is automated and the option can run for five years. |
Technology fees, royalties on licensed designs and inter-company purchases of inputs are common in foreign-owned manufacturing; see withholding and capital gains and transfer pricing.
Sources: Finance Act 2026 (No. 4 of 2026); Budget 2026-27 speech and memorandum (1 Feb 2026); BDO and RSM on the Finance Act 2026; PIB, 56th GST Council (3 Sep 2025) and safe harbour (1 Feb 2026); CLC Law and Aurtus on the 2026 rules.
What to check next
- Decide between the 25.168% concessional regime and the normal regime with MAT, since the 15% new-manufacturing regime is closed to companies that began production after 31 March 2024.
- If using MOOWR, plan the export and domestic split: duty and GST are deferred, not waived, and fall due on clearance to the domestic market.
- For electronics supply chains, confirm the conditions and prescribed reporting attached to the bonded-zone exemptions running to 31 March 2041.
- Check whether the Budget 2026-27 SEZ domestic-sales measure and the critical-minerals customs exemptions have been notified.
- Review treaty withholding on royalties, technical fees and dividends to the parent, and the GAAR exposure on any treaty-based exit.