Sector-specific measures
| Measure | What it says | Status |
|---|---|---|
| Data-centre exemption to March 2047 | Income of a notified foreign company from procuring services of a specified Indian data centre operated by an Indian company is exempt to the tax year ending 31 March 2047, if it does not own or operate the facility and sells to Indian users only via an Indian reseller. | Finance Act 2026 |
| IT-services safe harbour | Announced in Budget 2026-27 and notified with the Income-tax Rules 2026: one category for software, ITeS, KPO and contract R&D at a 15.5% margin on cost, up to ₹2,000 crore (was ₹300 crore), automated approval, five-year option. APAs are to be fast-tracked. | Budget 2026-27; in the Income-tax Rules 2026 |
| Related-party data-centre services | Budget 2026-27 proposed a safe harbour of 15% on cost where the company providing data-centre services from India is a related entity of the foreign cloud company. | Proposed; confirm its notification before relying on it |
| Start-up tax holiday (s.140) | Start-ups incorporated before 1 April 2030 that hold an Inter-Ministerial Board certificate can deduct 100% of profits for three consecutive tax years out of ten. The Finance Act 2026 raised the turnover limit from ₹100 crore to ₹300 crore. | Income-tax Act 2025 s.140, as amended |
| Digital taxes on non-residents | The 6% equalisation levy on online advertising was withdrawn from 1 April 2025. Significant economic presence can still create a taxable connection above ₹2 crore of payments from India or 300,000 Indian users, unless a tax treaty gives relief. | Since 1 April 2025 |
| Zones and Budget 2026-27 measures | STP units may sell in India up to 50% of exports; IT/ITeS SEZ units may allow work from home for up to 50% of staff (Rule 43A). Budget 2026-27 proposed AVGC labs in 15,000 schools and 500 colleges and removal of the ₹10 lakh courier-export cap. | STP and SEZ rules in force; Budget items proposed |
Check: The 15% safe harbour for related-party data-centre services was proposed in Budget 2026-27. The source does not confirm its notification. Confirm with the CBDT before relying on it.
Significant economic presence
A foreign company can have a taxable connection in India with no office or staff. Significant economic presence arises above ₹2 crore of payments from India or 300,000 Indian users, unless a tax treaty’s permanent-establishment test gives relief. Remote suppliers of software and cloud services should count Indian payments and users before deciding against an entity. See international tax.
Corporate tax rates, tax year 2026-27
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 (effective rate = base rate × (1 + surcharge) × 1.04). Treaty rates can be lower where treaty conditions are met. The generic page is corporate tax.
| 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. |
Withholding, capital gains, buy-backs, GST 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. See withholding and capital gains and transfer pricing.
| 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. |
Withholding rates are domestic-law rates for tax year 2026-27; the applicable treaty may reduce them.
Zones
- STP units may sell in India up to 50% of exports and receive customs duty exemption on imports. See regulators and registrations.
- IT/ITeS SEZ units may allow work from home for up to 50% of staff for up to one year under Rule 43A (2022), extendable by the Development Commissioner.
- Customs and GST on imports of equipment follow the general rules under GST and customs.
What to check next
- For a captive IT-services entity, compare the 15.5% safe harbour (five-year option, automated approval) with a unilateral APA.
- If you are a foreign cloud company, test the three exemption conditions: notified, not owning or operating the facility, and selling to Indian users only through an Indian reseller.
- Count payments from India and Indian users against the ₹2 crore and 300,000 thresholds before relying on remote supply.
- Choose between the s.200 concessional regime and the normal regime at the first return; the choice affects MAT and deductions.
- Review any treaty-based exit plan against GAAR after the Tiger Global decision of January 2026.