The structure decides the rate. An Indian subsidiary is a domestic company; a branch is part of a foreign company. The difference shows up straight away in the headline rate.
Rate comparison
The table shows the headline rates commonly applied for FY 2026-27. Surcharge and cess are added on top, and the rates should be checked against the Finance Act in force before they are quoted in advice.
| Taxpayer | Base rate | Surcharge | Cess |
|---|---|---|---|
| Domestic company under the concessional regime (old section 115BAA) | 22% | 10% flat | 4% |
| Domestic company, regular regime, turnover up to the prescribed limit (25% category) | 25% | 7% (income Rs 1 to 10 crore) or 12% (above Rs 10 crore) | 4% |
| Foreign company (including a branch, and a company with a PE) | 35% | 2% (income Rs 1 to 10 crore); 5% (above Rs 10 crore) | 4% |
On the figures above, a subsidiary under the concessional regime has an effective rate of about 25.17%. A foreign company's effective rate works out at about 37.13% (35% with 2% surcharge and cess) or 38.22% (with 5% surcharge), and 36.4% if income is below Rs 1 crore. The concessional regime comes with conditions, including giving up specified deductions and incentives, and minimum alternate tax does not apply under it.
What counts as a foreign company's Indian income
Business profits attributable to a PE, and income that arises in India from royalty, fees for technical services or interest where the payer withholds tax. For passive income, the domestic withholding rates (for example 20% on royalty and fees for technical services, before treaty relief) may be reduced by the applicable DTAA if the recipient holds a tax residency certificate and meets the treaty conditions.
Subsidiary vs branch: how to think about it
- A branch pays the higher foreign-company rate but avoids dividend distribution; profits are remitted without dividend tax, though remittance of branch profits needs bank documentation.
- A subsidiary pays the lower company rate, then withholding tax of 20% (before treaty) on dividends to the parent.
- Total tax cost over the life of the investment needs a model, not a headline comparison. Treaty rates on dividends often fall between 5% and 15%.
Compliance
The company files its return and, where applicable, a tax audit report and transfer pricing certificate. Foreign companies with a PE must also maintain books attributing profits to India.
Note on the Income-tax Act, 2025
The 2025 Act, in force from 1 April 2026, restructures and renumbers the provisions but is designed to keep the rate position. Confirm current text and the new section numbers before quoting them in advice.
How A2 Consultants can help: A2 Consultants models tax cost across subsidiary, branch and no-entity options for foreign groups. Start at https://www.a2consultants.in.
Author: Sudheer Nagavarapu, Partner, A2 Consultants, Hyderabad. https://www.a2consultants.in
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