GST, corporate tax and TDS

India taxes company profits much as any country does. What surprises foreign finance teams is the rhythm: GST filings every month, corporate tax paid in four instalments during the year, tax withheld at source on most payments the company makes, and a financial year that runs April to March.

Once the calendar is set up the work is routine. Until it is, the interest and the missed credits accumulate without anyone noticing.

Financial year

1 April to 31 March

Most common corporate rate

25.17% under Section 115BAA

GST filings

Monthly, by the 11th and the 20th

Advance tax

Four instalments: 15 June, 15 September, 15 December, 15 March

TDS deposit

By the 7th of the following month

Corporate tax return

Generally 31 October where transfer pricing applies

Why does India use "previous year" and "assessment year"?

They are two different years and the distinction runs through every Indian tax document. The previous year is the financial year in which income is earned, running 1 April to 31 March. The assessment year is the following year, in which that income is assessed and the return is filed.

Income earned in FY 2025-26 is reported in AY 2026-27. Your Indian accountant will use both terms in the same sentence and assume you follow.

What is GST and when do you have to register?

From inception, for most foreign subsidiaries, regardless of turnover. GST is a unified national tax on almost every supply of goods and services, introduced in 2017 to replace a fragmented web of central and state taxes. If you are coming from the US, it behaves like a more structured sales tax. If you are coming from Europe, it is close to VAT.

Registration is state-wise. You register in every state from which you make a taxable supply, so a second office or warehouse in another state means a second registration.

Reverse charge on what the parent sells you

When your Indian subsidiary receives services from the parent company, management fees, technical support, software licences or royalties, Indian GST law treats the subsidiary as the taxpayer. The subsidiary self-assesses 18% IGST on those payments, issues a self-invoice and then claims that amount back as Input Tax Credit.

The cash goes out and comes back, provided the mechanics are set up correctly from the start. Set them up late and you have a backlog of self-invoices, missed credits and interest exposure that accumulates every month.

The Letter of Undertaking, if you invoice the parent

If the subsidiary provides services back to the parent, which is what most captive and global capability centre structures do, those services are zero-rated exports. To make them without paying GST upfront and claiming a refund later, the subsidiary files a Letter of Undertaking before the start of each financial year.

It is a simple filing. Missing it forces an avoidable cash flow cycle: you pay IGST on export invoices and then chase a refund that can take months.

GST compliance is only as clean as your bookkeeping. Input Tax Credit can be claimed only to the extent supplier invoices appear in your auto-populated GSTR-2B statement, so a monthly reconciliation between your books, GSTR-2B and your claims is part of the close rather than an annual exercise.

What corporate tax rate will you pay?

25.17%, for most foreign-owned services subsidiaries, under the concessional regime in Section 115BAA of the Income-tax Act. India gives companies a choice between the standard regime and concessional regimes that apply subject to conditions.

Most captive services entities do not rely heavily on the deductions and incentives available under the standard regime, so the concessional rate is usually the better trade. A few practical points matter more than the headline number.

• The 115BAA election is made through Form 10-IC.
• Form 10-IC has to be filed within the prescribed return filing timeline.
• The election is generally irrevocable once exercised, so treat it as a decision rather than a routine filing.
• Section 115BAB is available only to qualifying new manufacturing companies that satisfy the prescribed conditions and timelines.

How does advance tax work?

You pay corporate tax during the year rather than after it. India expects tax to be paid progressively through four instalments, and interest applies automatically if the payments fall short.

Two interest provisions matter in practice. Section 234B applies where less than 90% of the total tax liability is paid by 31 March. Section 234C applies where the quarterly instalments fall short of the schedule above.

The first year is the hardest to estimate. New subsidiaries do not yet know how quickly hiring will ramp, when intercompany billing will stabilise, or how much cost will ultimately sit in India rather than overseas, so early estimates get revised through the year. Most finance teams prefer to overpay slightly: excess tax can be adjusted or refunded later, while interest on a shortfall applies automatically.

What is TDS and when does it apply?

Tax Deducted at Source is the mechanism through which India collects direct taxes during the year. Your Indian subsidiary becomes a withholding agent for the Income Tax Department from the moment it starts making payments, using the TAN issued alongside the PAN at incorporation.

The framework is broad. Salaries, contractor payments, professional fees, rent, software payments and overseas remittances can all trigger withholding. Under Sections 40(a)(i) and 40(a)(ia), certain expenses become temporarily non-deductible if the required TDS is not properly withheld and deposited, so getting it wrong costs more than the tax itself.

Section 195, the one that concerns the parent

Section 195 covers payments made by the Indian subsidiary to the foreign parent or to overseas vendors: royalties, management fees, software licensing and technical services. This is where withholding meets treaty relief, and where a missing document is expensive.

Depending on the nature and size of the remittance, Form 15CA and in certain cases a Form 15CB certification from a Chartered Accountant may also be required before funds can leave India.

How does the tax treaty reduce what you withhold?

A Double Taxation Avoidance Agreement stops the same income being taxed twice, once in India where it was earned and again in the parent's home country. India has treaties with over 90 countries, including the USA, UK, Singapore, UAE, Netherlands, Germany, Australia and Canada.

Without treaty relief the default withholding rate is 20%. With it, depending on the country, that rate can fall as low as 5% on dividends, interest, royalties and management fees flowing from the Indian subsidiary back to the parent.

If your parent is somewhere without a treaty

Default withholding rates apply, typically 20% on dividends, royalties and technical service fees. Some companies route through a treaty-friendly jurisdiction such as Singapore or the Netherlands. India's tax authority actively scrutinises such arrangements under the Principal Purpose Test, so take advice before structuring around it.

What does the annual audit cycle involve?

In most countries a statutory audit applies only once a company reaches a certain size or lists publicly. In India every private limited company is audited from its first year of incorporation, whatever its revenue or transaction volume.

A wholly owned subsidiary usually runs three separate audit and reporting tracks in parallel each year. Each serves a different purpose under Indian law and each involves its own filings and certifications.

Accounting standards may fall under AS or Ind AS depending on applicability thresholds and group structure. Books of account have to be maintained under the Companies Act, 2013, and the financial statements are filed with the MCA in Form AOC-4 after the annual general meeting.

Transfer pricing has its own section, because for a foreign-owned subsidiary it is the single largest source of tax exposure. See transfer pricing.