Taxation of Wholly Owned Subsidiary in India: Tax Rates and Compliance Guide 2026

The taxation of a wholly owned subsidiary in India is a key consideration for overseas investors establishing an Indian private limited company. Although the foreign parent may own 100% of the shares, the Indian subsidiary is a separate legal and taxable entity. Its business profits are generally subject to Indian corporate income tax, while cross-border payments can attract withholding tax, transfer pricing and GST obligations.

For Tax Year 2026-27, an eligible Indian subsidiary may opt for a 22% concessional corporate tax rate under Section 200 of the Income-tax Act, 2025. Including the prescribed surcharge and cess, the effective rate on ordinary income is 25.168%. Alternatively, the normal domestic company tax regime may apply.

This guide covers corporate tax rates, tax regime selection, minimum alternate tax, dividends, payments to foreign parents, international taxation, transfer pricing, GST, TDS, advance tax, return filing and profit repatriation.

Investors considering an Indian entity should also review our Wholly Owned Subsidiary in India and India Market Entry Consulting guides.

How Is a Wholly Owned Subsidiary Taxed in India?

Separate Legal and Taxable Entity

An Indian wholly owned subsidiary (WOS) is generally incorporated under the Companies Act, 2013. It has a legal identity distinct from its overseas shareholder and independently maintains books, computes taxable income, pays tax and files returns.

India does not ordinarily permit the Indian subsidiary and foreign parent to file a single consolidated corporate income-tax return merely because they belong to the same group.

Domestic Company Status Despite Foreign Ownership

A company incorporated in India is generally treated as a domestic company for Indian corporate income-tax purposes, even when its entire share capital is held by a foreign parent.

Consequently, domestic company tax rates are relevant to the Indian subsidiary. The overseas parent is separately taxed on income chargeable in India under applicable domestic law and tax treaties.

Taxes and Compliance Obligations

Depending on its activities, an Indian WOS may need to comply with corporate income tax, advance tax, TDS, non-resident withholding tax, transfer pricing, GST, payroll taxation and annual reporting.

Foreign ownership also makes it important to coordinate tax treatment with FDI and FEMA Compliance in India.

Corporate Income Tax Rates for an Indian WOS in 2026

Concessional Corporate Tax Rate of 22%

Section 200 of the Income-tax Act, 2025 provides an eligible domestic company with an option to pay corporate income tax at 22%, subject to the statutory conditions.

A surcharge of 10% and Health and Education Cess of 4% on tax plus surcharge result in an effective rate of 25.168% for income taxable under this regime.

Refer to the official Section 200 provisions.

Normal Corporate Tax Rates of 25% and 30%

Under the normal regime, the domestic company base tax rate is generally 25% where the statutory turnover or gross-receipts eligibility condition is satisfied, and 30% in other cases.

For Tax Year 2026-27, the relevant turnover threshold is generally ₹400 crore for Tax Year 2024-25. Applicable surcharge and 4% cess are additional.

The company should verify the relevant reference year and eligibility before applying the lower normal rate.

Comparison of Corporate Tax Regimes

Tax regime	Base rate	Key consideration
Section 200 concessional regime	22%	Effective rate 25.168%; specified deductions restricted
Normal domestic company regime	25%	Turnover eligibility and applicable surcharge
Other normal domestic companies	30%	Applicable surcharge and cess

Income taxable at special rates must be evaluated separately. Investors should compare total projected tax liability rather than headline rates alone.

Choosing the Best Corporate Tax Regime for a WOS

Conditions Under the Concessional Regime

The 22% rate is not automatic. A company opting for Section 200 must comply with the prescribed restrictions on specified deductions, incentives and related loss adjustments.

Management should review the effect on existing tax attributes and the continuing implications of the election before exercising the option.

Illustrative Tax Calculation on ₹1 Crore Income

Assume an eligible Indian WOS has taxable income of ₹1 crore, entirely subject to the Section 200 rate:

Particulars	Amount
Taxable income	₹1,00,00,000
Tax at 22%	₹22,00,000
Surcharge at 10%	₹2,20,000
Cess at 4%	₹96,800
Total tax	₹25,16,800
Effective rate	25.168%

This illustration excludes special-rate income, tax credits and other fact-specific adjustments.

When the Normal Regime May Be Better

A subsidiary with substantial eligible deductions, depreciation or brought-forward tax losses may need to evaluate whether the normal regime produces a lower overall tax liability.

Tax planning should consider several projected years and be coordinated with the initial business plan. See our Cost of Setting Up a Wholly Owned Subsidiary in India guide.

Minimum Alternate Tax for Foreign-Owned Subsidiaries

Purpose of Minimum Alternate Tax

Minimum Alternate Tax (MAT) is an alternative computation intended to apply in specified cases where tax under the normal provisions is lower than the prescribed tax on adjusted book profits.

The MAT framework applicable from Tax Year 2026-27 is contained in Section 206 of the Income-tax Act, 2025.

MAT Rate and Calculation

For Tax Year 2026-27, the general MAT rate is 14% of adjusted book profit, plus applicable surcharge and cess, subject to the statutory rules.

Historic MAT credits and transitional provisions require separate examination. See the Income Tax Department’s MAT guidance.

MAT Exemption Under Section 200

A domestic company validly opting for the concessional corporate tax regime under Section 200 is not subject to MAT.

This distinction should form part of the overall comparison between the normal and concessional tax regimes.

Dividend Taxation and Payments to Foreign Shareholders

Dividend Is Not Deductible for the Indian WOS

A dividend is a distribution of profits to shareholders, not an ordinary business expenditure. Accordingly, the Indian subsidiary cannot claim a deduction merely because it distributes dividends to its foreign parent.

Dividend declaration must also comply with the Companies Act, 2013.

Taxability in the Foreign Parent’s Hands

Dividends received by a non-resident shareholder may be taxable in India. The applicable Double Taxation Avoidance Agreement (DTAA) can affect the rate or treatment where its conditions are met.

Beneficial ownership, treaty eligibility and other anti-abuse requirements must be considered.

Withholding Tax on Dividend Remittances

Before remitting a dividend, the subsidiary should determine the applicable domestic withholding rate and examine treaty benefits.

Relevant documentation may include the foreign shareholder’s Tax Residency Certificate, declarations and supporting information required to establish treaty entitlement.

Dividend withholding should be considered together with banking and FEMA requirements.

Management Fees, Royalty and Overseas Service Payments

Management and Administrative Service Charges

An Indian WOS may pay its foreign parent for genuine management, finance, administrative, technical, IT or other support services.

Deductibility depends on the business purpose, evidence of actual services, contractual terms, applicable withholding provisions and transfer pricing requirements.

Royalty and Fees for Technical Services

Payments for intellectual property, technology, know-how or technical services may be taxable in India under domestic law, subject to applicable treaty provisions.

The transaction should be classified according to its actual substance, rather than relying solely on the description in an intercompany invoice.

Tax Treatment of Cost Reimbursements

Calling an overseas payment a reimbursement does not automatically eliminate tax or withholding obligations.

The company should examine whether the payment is a pure reimbursement or includes a service element, markup or other chargeable income.

Foreign remittances may also require appropriate documentation under Form 15CA and Form 15CB requirements.

Transfer Pricing Rules for an Indian Wholly Owned Subsidiary

Associated Enterprises and Arm’s Length Pricing

An Indian WOS and its foreign parent will ordinarily fall within the associated-enterprise framework for relevant international transactions.

Transfer pricing rules generally require qualifying transactions to be priced consistently with the arm’s length principle.

The official Income Tax Department transfer pricing guidance explains the underlying framework.

Common Intercompany Transactions

Relevant transactions may include software development services, IT-enabled services, purchase and sale of goods, management charges, royalty, loans, guarantees and cost-sharing arrangements.

The appropriate pricing method depends on the functions performed, assets employed, risks assumed and commercial circumstances.

Transfer Pricing Documentation and Form 3CEB

Where applicable, the company must maintain prescribed documentation and furnish the relevant accountant’s report, commonly known as Form 3CEB.

Intercompany agreements, invoices, benchmarking, allocation workings and evidence of services should be maintained contemporaneously.

Explore our International Tax Advisory Services for cross-border tax and transfer pricing support.

Taxation of Loans and Interest Paid to the Foreign Parent

Equity Versus Debt Funding

Foreign parents may fund Indian subsidiaries through equity and, where legally permitted, borrowings or other instruments.

Equity dividends are not deductible business expenses, while qualifying interest may be deductible subject to tax restrictions and regulatory requirements.

Withholding Tax on Interest Payments

Interest paid to an overseas lender may be chargeable to tax in India and subject to withholding.

The domestic rate, applicable DTAA, type of borrowing and any special provisions should be reviewed before payment.

Thin Capitalisation and Interest Deduction Restrictions

Indian income-tax law restricts deductions for interest in specified cross-border related-party financing situations.

The company should evaluate the relevant statutory thresholds, permitted deductions and carry-forward rules where applicable.

Debt funding must also comply with applicable RBI and FEMA requirements.

GST on Indian Subsidiary Operations and Intercompany Services

GST Registration and Domestic Supplies

An Indian WOS is a separate legal person for GST purposes and must independently evaluate its registration requirements.

GST may apply to taxable supplies of goods or services in India, subject to applicable rates, exemptions and place-of-supply rules.

Import of Services and Reverse Charge

Services received from an overseas parent may constitute import of services and attract GST under the reverse charge mechanism, depending on the statutory conditions.

Input tax credit may be available where the normal eligibility requirements are satisfied.

Export of Services and Zero-Rated Supplies

Where the Indian subsidiary provides qualifying export services, zero-rated GST treatment may be available under the IGST Act.

The company must verify the export conditions, place of supply, consideration and relevant documentation.

For accounting support, see our Accounting and Bookkeeping Services in India.

TDS, Payroll Tax and Domestic Compliance

TDS on Salaries and Business Payments

The Indian subsidiary may need to deduct tax on salaries, professional fees, contractor payments, rent, interest and other payments covered by the applicable provisions.

Deduction, deposit, quarterly reporting and tax certificate requirements should be incorporated into the accounting process.

Withholding on Payments to Non-Residents

Overseas payments require a separate review of Indian tax chargeability, applicable treaty provisions, withholding rates and remittance documentation.

Incorrect withholding can lead to interest, disallowance and other tax consequences.

Employee and Expatriate Tax Considerations

Foreign-owned subsidiaries employing Indian or expatriate staff should review salary taxation, employee benefits, perquisites, reimbursements and applicable payroll reporting.

Cross-border secondments may also raise employer, permanent establishment, GST and withholding questions depending on the facts.

Advance Tax, Income-Tax Returns and Audit Requirements

Advance Tax Instalment Schedule

Where advance tax applies, the normal cumulative instalment schedule is generally:

Due date	Cumulative payment
15 June	15%
15 September	45%
15 December	75%
15 March	100%

Applicable exceptions and calculation provisions must be considered.

Corporate Income-Tax Return Filing

An Indian company is generally required to furnish an annual income-tax return even where it reports a loss or has no taxable income.

Return filing for the relevant tax year must follow the applicable statutory deadlines, including any officially notified extensions.

The official Income Tax e-Filing Portal provides current filing information.

Statutory Audit, Tax Audit and Form 3CEB

Statutory audit under the Companies Act is distinct from tax audit and transfer pricing reporting under income-tax law.

The company should determine each requirement independently, taking account of its business, transactions and statutory eligibility.

Repatriation of Profits From India to the Foreign Parent

Dividend Distribution as a Profit Repatriation Method

Dividends are a common method of distributing profits from an Indian subsidiary to its foreign shareholder.

Before payment, the company should examine distributable profits, corporate approvals, withholding tax, treaty relief and applicable FEMA documentation.

Service Fees, Royalties and Other Payments

Genuine commercial payments to the foreign parent may be permissible where supported by agreements, actual services or rights and appropriate pricing.

These payments should not be used merely as substitutes for dividend distributions.

Tax and FEMA Coordination for Remittances

Cross-border payments should be reviewed under income tax, transfer pricing, GST and FEMA simultaneously.

For detailed regulatory guidance, see our FDI and FEMA Compliance article and the official Reserve Bank of India website.

Permanent Establishment Risk for the Foreign Parent

Subsidiary Ownership Does Not Automatically Create a PE

The existence of an Indian WOS does not automatically create a permanent establishment of the foreign parent in India.

Permanent establishment exposure depends on the relevant facts and the applicable tax treaty.

Activities That May Create PE Exposure

Risk may arise from premises used by the foreign parent, activities of employees, dependent agents, contracting arrangements or other circumstances satisfying the relevant treaty tests.

The actual business conduct is more important than contractual labels alone.

Managing PE Risk Through Operational Governance

The group should document responsibilities, contracting authority, management functions and the actual activities of Indian and overseas personnel.

For a comparison of establishment models, see Doing Business in India: Options for Foreign Companies.

Tax Planning and Compliance Checklist for an Indian WOS

Before Incorporation and Initial Funding

• Confirm the proposed Indian business model and FDI route.
• Compare corporate tax regimes.
• Plan equity and debt funding.
• Identify expected international transactions.
• Determine initial accounting and tax registrations.

Our India Market Entry Checklist provides a broader implementation framework.

During the First Year of Business

• Maintain proper accounting records.
• Execute intercompany agreements.
• Implement TDS and GST controls.
• Prepare transfer pricing support.
• Review advance tax obligations.
• Coordinate corporate and FEMA compliance.

Before Annual Tax and Regulatory Filings

• Finalise audited financial statements.
• Reconcile tax and accounting records.
• Review foreign remittances and withholding.
• Complete applicable transfer pricing reporting.
• Verify return-filing deadlines.
• Assess tax positions and outstanding exposures.

Common Tax Mistakes and Frequently Asked Questions

Common Mistakes by Foreign-Owned Subsidiaries

Common mistakes include automatically applying the 22% corporate tax rate, failing to document intercompany services, ignoring transfer pricing until year-end, incorrectly treating reimbursements as tax-free and overlooking GST on imported services.

Another frequent issue is examining income tax and FEMA independently despite the same cross-border transaction affecting both frameworks.

Frequently Asked Questions About Corporate Tax

What is the corporate tax rate for a WOS in India? An eligible domestic company may opt for the 22% regime, resulting in an effective rate of approximately 25.168% after prescribed surcharge and cess on ordinary income. Otherwise, the normal domestic company rates may apply.

Is a foreign-owned Indian subsidiary a foreign company for income-tax purposes? Generally no. An Indian-incorporated company is treated as a domestic company.

Does MAT apply under Section 200? No, where the company has validly opted for the regime.

Must a loss-making WOS file an income-tax return? Generally yes.

Frequently Asked Questions About Cross-Border Tax

Does transfer pricing apply to transactions with a 100% foreign parent? Generally yes, where the applicable associated-enterprise and international-transaction conditions are satisfied.

Can management fees paid overseas be deducted? They may be deductible where genuine, properly supported and compliant with applicable tax provisions.

Are dividends subject to withholding? Indian withholding tax may apply, subject to applicable treaty relief and conditions.

Can profits be repatriated? Yes, through legally permissible methods subject to company law, tax and FEMA requirements.

Related Services, Contact and Professional Review

How EzyBiz India Assists Foreign-Owned Subsidiaries

EzyBiz India Consulting LLP supports foreign investors with corporate taxation, transfer pricing, GST, international withholding tax, accounting, statutory audit coordination, FEMA compliance and ongoing business advisory.

For assistance with Indian subsidiary taxation, contact +91 98992 17778 or email anil@ezybizindia.in.

Related Services and Supporting Guides

• Wholly Owned Subsidiary in India
• India Market Entry Consulting
• Foreign Company Registration in India
• Cost of Setting Up a WOS
• International Tax Advisory
• Tax and Regulatory Advisory
• FDI and FEMA Compliance
• Form 15CA and 15CB
• Accounting and Bookkeeping
• Income Tax Assessment and Litigation

Prepared By, Reviewed By and Disclaimer

Prepared By: EzyBiz India Consulting LLP

Reviewed By: CA Anil Agrawal, FCA, Founder, EzyBiz India Consulting LLP, with over 20 years of experience in taxation, regulatory compliance and business advisory.

Last Updated: November 2026

Disclaimer: This guide is provided for general informational purposes and does not constitute legal, tax, transfer pricing, GST, FEMA or investment advice. The Income-tax Act, 2025 applies from 1 April 2026, while earlier tax years may remain governed by the Income-tax Act, 1961 under applicable transitional provisions. Tax rates, deductions, surcharge, treaty benefits, withholding obligations and filing requirements depend on the relevant tax year and individual facts and may change. Professional advice should be obtained before making tax or investment decisions.