Company Formation & Tax in India
The world's fastest-growing major economy — a 22% concessional corporate tax, a newly simplified two-slab GST, and automatic-route FDI across most sectors.
India pairs scale with a tax system that has become markedly simpler. Domestic companies electing the concessional regime pay 22% corporate tax — 25.17% effective with surcharge and cess — and the September 2025 "GST 2.0" reform collapsed four GST slabs into two principal rates of 5% and 18%. With foreign direct investment permitted under the automatic route in most sectors and a treaty network spanning over 90 countries, the Private Limited company remains the standard entry vehicle for international groups and founders.
The headline numbers
| Tax | Rate |
|---|---|
| Corporate tax — concessional regime (domestic) | 22% (25.17% effective) |
| Corporate tax — standard regime (domestic) | 30% + surcharge & cess |
| Corporate tax — foreign companies | 35% + surcharge & cess |
| GST — principal slabs (from Sept 2025) | 5% / 18% |
| GST — luxury & demerit goods | 40% |
The 22% concessional rate under section 115BAA requires giving up most exemptions and incentives — a trade the majority of new companies take. Dividends are taxed in shareholders' hands, with treaty relief typically reducing withholding on outbound dividends to 5–15%.
GST 2.0 — what changed
Effective 22 September 2025, the GST Council abolished the 12% and 28% slabs. Most goods and services now fall at 5% (essentials) or 18% (standard), with a 40% rate confined to a narrow set of luxury and demerit items. For businesses this means fewer classification disputes and simpler invoicing — but ERP rate mappings, contracts and pricing set before the reform must be reviewed, as invoicing at abolished rates attracts penalties.
Foreign investment routes
- Automatic route — 100% FDI without prior approval in most sectors, including IT, manufacturing, single-brand retail and most services; only a post-facto FEMA filing is required.
- Government route — prior approval for sensitive sectors (defence beyond caps, media, multi-brand retail), and for investment from land-border countries.
- Treaty network — over 90 double-tax treaties (DTAAs), including with the UAE, Singapore, the Netherlands and Mauritius, shaping how holding structures above India are built.
Forming the company
The standard vehicle is the Private Limited Company (Pvt. Ltd.), incorporated through the MCA's SPICe+ portal — name approval, incorporation, PAN, TAN and GST registration in one filing, typically completed in one to two weeks. Requirements: at least two shareholders and two directors, of whom one director must be resident in India (182+ days in the year); no minimum capital. Foreign subscription is reported under FEMA. Annual compliance includes MCA filings, statutory audit (mandatory for all companies regardless of size) and the corporate tax return.
Frequently asked questions
What is India's corporate tax rate in 2026?
Domestic companies electing the concessional regime pay 22%, an effective 25.17% including surcharge and cess. The standard regime is 30%, and foreign companies pay 35%, each plus surcharge and cess.
What are the GST rates after the 2025 reform?
Two principal slabs — 5% for essentials and 18% for standard goods and services — plus 0% for exempt items and 40% for select luxury and demerit goods, effective 22 September 2025.
Can a foreign company own 100% of an Indian company?
Yes, in most sectors under the automatic FDI route with no prior approval. The company still needs at least one India-resident director.
How long does incorporation take?
Typically one to two weeks through the SPICe+ system, which bundles incorporation with PAN, TAN and GST registration in a single filing.
Official sources
- Income Tax Department — corporate tax
- Ministry of Corporate Affairs — incorporation
- GST Portal — GST registration and rates
This guide is general information prepared by ARM Management and is current as at July 2026. It is not legal or tax advice; regime elections, FDI conditions and GST classifications are fact-specific and rules change. Confirm against official sources, or with an advisor, before acting.
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