1Why this matters for foreign-owned companies

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For more than six decades, India's income tax system ran on the Income-tax Act, 1961. Amended almost every year, it had grown to well over a thousand sections, with "lettered" insertions such as 92CA, 115BAA and 194-O, and a large body of rules and forms built around it. The Income-tax Act, 2025 (Act 30 of 2025) rewrites the law in simpler language and a new structure, and came into force on 1 April 2026. The Income-tax Rules, 2026, notified in March 2026, replace the Income-tax Rules, 1962 and renumber almost every form.

The Government's stated aim was simplification rather than a change in tax policy. For most foreign-owned Indian companies, the substance of how they are taxed is broadly the same. But foreign-owned subsidiaries are among the most heavily exposed to the new machinery, because so much of their compliance involves cross-border payments, treaty claims, transfer pricing reports and remittance certificates, all of which have new section references, forms and codes.

Group tax teams outside India also need to adjust. Intercompany agreements, transfer pricing policies, treaty documentation packs, ERP tax codes and global compliance calendars often cite Indian section and form numbers. These now need to be updated, and the first filings under the new forms are approaching.

2Transition: which law applies to what

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The most immediate practical question is which Act governs a particular year, payment or proceeding. The Central Board of Direct Taxes (CBDT) has published FAQs on the transition, and the key rules are clear.

3The "tax year" and the new structure

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3.1 One concept instead of two

Under the 1961 Act, income of the "previous year" was assessed in the following "assessment year", a distinction that regularly confused overseas finance teams. The new Act uses a single concept: the tax year, which is the financial year from 1 April to 31 March. Income of FY 2026-27 is simply the income of tax year 2026-27. For foreign groups with a calendar-year reporting cycle, India's fiscal year remains April to March; the new Act does not allow an Indian subsidiary to adopt a different tax year.

3.2 Renumbered sections and schedules

Sections have been renumbered and regrouped, and many exemptions and deductions now sit in schedules rather than in long lists inside a single section. Some examples that matter to foreign-owned companies:

4Corporate tax rates and MAT

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4.1 Rates carry over

The new Act did not change headline corporate tax rates. An Indian subsidiary of a foreign group is a domestic company and continues to choose between two broad regimes:

The 15% regime for new manufacturing companies (formerly Section 115BAB) was available only to companies that began manufacturing by 31 March 2024, so it is not an option for new projects. Branches and project offices of foreign companies are taxed as foreign companies at a higher rate, which is one reason most groups operate in India through a subsidiary. See our guides on wholly-owned subsidiaries and branch offices.

4.2 MAT becomes a final tax

The Finance Act, 2026 made a significant change to Minimum Alternate Tax for companies in the regular regime:

• From 1 April 2026, MAT is a final tax; no new MAT credit is created for later set-off.
• The MAT rate is reduced from 15% to 14% of book profit (plus surcharge and cess).
• Companies with MAT credit brought forward up to 31 March 2026 that move to the concessional regime can set it off, subject to a cap of one-fourth of the tax liability for a year.

For subsidiaries that stayed in the regular regime to use accumulated MAT credit, this changes the calculation. Many will now find the concessional regime more attractive. Model both options before filing the return for tax year 2026-27; our corporate tax team can help.

5Payments to the parent: TDS under Section 393

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Withholding tax on payments to non-residents was formerly governed mainly by Section 195, with special rate provisions scattered elsewhere. Under the new Act, Section 393 brings almost all non-salary TDS into one section, arranged in tables:

• Section 393(1) for payments to residents, such as contractor fees, professional fees, rent and interest;
• Section 393(2) for payments to non-residents, covering royalties, fees for technical services, interest, dividends and other sums chargeable to tax; and
• common provisions for all payees, including nil and lower deduction certificates.

5.1 Payment codes replace section numbers

From tax year 2026-27, TDS returns and challans identify the nature of payment using numeric payment codes (in the range 1001 to 1092) rather than section numbers. For example, royalty and fees for technical services paid to a non-resident fall under a specific serial number of the non-resident table in Section 393(2), with its own code. Every vendor master, payment type and ERP tax code must be mapped to the correct code.

5.2 Typical intercompany payments

5.3 Deadlines and returns

TDS must be deposited by the 7th of the following month, and by 30 April for amounts deducted in March. Quarterly TDS statements are due by the last day of the month following the quarter, and by 31 May for the fourth quarter. The quarterly statements and TDS certificates have new form numbers under the 2026 Rules, and paper filing is no longer permitted for any deductor. Our TDS return filing service covers the new formats.

6Treaty benefits: Form 41, TRC and anti-abuse rules

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India's network of double taxation avoidance agreements (DTAAs) continues to apply under the new Act. A foreign parent can still be taxed at the lower of the domestic rate and the treaty rate. What has changed is the paperwork.

6.1 The documentation pack

• Tax Residency Certificate (TRC) from the parent's home tax authority for the relevant period.
• Form 41 (formerly Form 10F), the self-declaration with details not contained in the TRC. Reports indicate that Form 41 is now expected in all cases, even if the TRC already contains every required detail.
• No-PE declaration confirming that the parent has no permanent establishment in India to which the income is attributable, where relevant.
• Beneficial ownership declaration for dividends, interest and royalties, where the treaty requires it.
• PAN of the parent, or the alternative information prescribed for non-residents without a PAN, to avoid higher withholding.

Non-residents applying for a PAN or TAN under the new Rules must also name a local representative in India. Indian residents who need a TRC from India now apply on Form 42 (formerly Form 10FA).

6.2 Anti-abuse rules still apply

Treaty access remains subject to India's General Anti-Avoidance Rules, the Principal Purpose Test introduced through the Multilateral Instrument in many treaties, and limitation-of-benefits clauses. Several treaties have also been renegotiated; for example, the India–France treaty was amended with revised dividend rates, removal of the most-favoured-nation clause and a principal purpose test. Holding structures through intermediate jurisdictions should be reviewed for substance.

7Foreign remittances: Forms 145 and 146

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Every payment from India to the parent or any other non-resident must still be reported before remittance. The familiar Forms 15CA and 15CB have been replaced:

For remittances of capital gains, for example when a foreign shareholder sells shares in the Indian company, the forms also ask for details of the sale, cost of acquisition and dates. Plan for the extra information well before the remittance date. The FEMA side of the same transaction, such as Form FC-TRS, must also be completed.

8Transfer pricing: Form 48, safe harbour and APAs

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Transfer pricing is the single largest tax risk area for most foreign-owned Indian companies. The arm's length principle, the five methods and the documentation obligations continue under the new Act, but the reporting and some of the incentives have changed.

8.1 Form 48 replaces Form 3CEB

The accountant's report on international and specified domestic transactions is now Form 48, applicable from tax year 2026-27. It is more detailed and machine-readable than Form 3CEB. Reports indicate that it asks for:

• benchmarking data, including comparables, the arm's length range and comparability adjustments;
• whether a transfer pricing study exists, and the number of associated enterprises;
• details of any advance pricing agreement covering the transactions; and
• method-wise illustrations of the arm's length price.

Because the data is structured, it can be more easily analysed by risk-assessment tools and exchanged with foreign tax authorities. Expect inconsistencies between Form 48, the master file, country-by-country data and financial statements to be picked up more quickly.

8.2 Safe harbour expanded

The Finance Act, 2026 made safe harbour far more usable for captive service centres:

Opting for safe harbour gives certainty but rules out the mutual agreement procedure for those transactions, and the corresponding price may not be accepted by the parent's tax authority. Weigh both before opting in.

8.3 APAs and other procedures

• Unilateral APAs for IT service providers are to be fast-tracked, with an aim to conclude them within two years.
• APA rollback continues, but requires the returns for rollback years to have been filed by the original due date.
• Master file and country-by-country reporting obligations continue under new form numbers.

9Dividends, buybacks and repatriation

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How profits travel back to the parent is often the most important tax question for a foreign-owned company. The main routes are:

Repatriation decisions also have company law and FEMA dimensions: declaring dividends needs board and shareholder approval and audited accounts, while buybacks and capital reductions need specific approvals and filings. See our services for board resolutions, annual ROC filings and FEMA compliance.

10Old forms vs new forms: quick reference

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The Income-tax Rules, 2026 renumber almost every form. The table below lists those most used by foreign-owned companies. Verify each against the official Rules before filing, as some secondary sources differ.

11Compliance calendar for tax year 2026-27

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The rhythm of compliance is broadly the same, but every filing now uses new forms. The key recurring obligations for a typical foreign-owned subsidiary are:

• Monthly
  TDS deposit by the 7th of the following month (30 April for March); Forms 145 and 146 before each foreign remittance.
• Quarterly
  Advance tax instalments (15 June, 15 September, 15 December, 15 March); TDS statements by the end of the following month (31 May for Q4).
• Annual
  Tax audit report (Form 26) and transfer pricing report (Form 48) before the return due date; income tax return; master file and country-by-country filings where thresholds apply.
• Transitional
  Return of income for FY 2025-26 (assessment year 2026-27) under the 1961 Act and its forms, filed during 2026.

For the complete month-by-month view, including GST, FEMA and company law deadlines, see our tax year 2026-27 compliance calendar.

12Updating contracts, ERP and processes

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12.1 Intercompany agreements

The CBDT has clarified that existing contracts do not need to be amended merely because the new Act has come into force. However, agreements that refer to specific 1961 Act sections, for example tax gross-up clauses citing Section 195 or definitions linked to Section 9, should be updated at the next renewal to refer to the corresponding provisions of the 2025 Act, or to "the applicable provisions of the Income-tax law as in force from time to time". Review intercompany technology licences, service agreements and loan agreements.

12.2 ERP and payment systems

• Replace section-based TDS codes with the new payment codes.
• Update vendor masters for non-resident payees with Form 41, TRC validity dates and treaty rates.
• Update remittance workflows to capture the additional Form 145 and 146 data fields.
• Reconfigure TDS return and certificate templates to the new forms.

Citing an old section number for payments made after 1 April 2026 can cause processing errors in TDS returns and may require correction statements.

12.3 Payroll and expatriates

Salary TDS now sits under Section 392, and payroll systems should reflect the new references. Expatriates seconded to India, and ESOPs granted by the foreign parent to Indian employees, need particular care; see our guide on ESOPs for Indian employees of a foreign parent and our payroll processing service.

13What has not changed

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It is equally important to recognise what stays the same, so that teams focus their effort in the right places:

Also unchanged are the obligations under other laws: GST (see GST compliance), FEMA reporting, company law filings and the Labour Codes.

14Action checklist for CFOs and group tax teams

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• Close FY 2025-26 under the old Act. File the tax audit, transfer pricing report and return for assessment year 2026-27 using the 1961 Act forms.
• Re-test the tax regime. Model the concessional 22% regime against the regular regime, now that MAT is a final tax at 14% and MAT credit use is capped.
• Assess safe harbour. Captive IT and ITeS centres with revenue up to ₹2,000 crore should evaluate the 15.5% single-category safe harbour.
• Refresh treaty documentation. Obtain current TRCs and Form 41 declarations from every foreign payee, including the parent.
• Update remittance processes for Forms 145 and 146 and their additional data fields.
• Remap ERP tax codes to Section 393 payment codes and new TDS return forms.
• Prepare Form 48 data during the year: benchmarking, comparables and agreement details.
• Review intercompany agreements for references to old sections and update at renewal.
• Check non-resident PAN and TAN details, including the local representative requirement.
• Align the group calendar with the new forms and due dates, and brief headquarters on the changes.

15How Delhi Legal Company can help

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Delhi Legal Company supports foreign-owned Indian companies with tax, accounting, FEMA and corporate compliance under one roof, so that the transition to the new Act is managed end to end.

16Conclusion

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The Income-tax Act, 2025 is a rewrite of the law's form rather than a revolution in its substance. For foreign-owned Indian companies, the tax they pay on their profits, the treaty rates available to their parents and the arm's length standard for intercompany transactions are largely what they were. But almost every number they work with has changed: sections, forms, codes and references. Alongside this, the Finance Act, 2026 has made MAT a final tax, broadened safe harbour and changed how buybacks are taxed.

The companies that will find the transition easiest are those that close FY 2025-26 cleanly under the old Act, update their documentation and systems early, and use the change as a chance to revisit their tax regime choice, transfer pricing approach and repatriation strategy.

Is your Indian subsidiary ready for the new Act?

We offer a focused transition review covering your tax regime, TDS and remittance processes, treaty documentation, transfer pricing and repatriation plans.

Book a consultation Explore tax services

Call +91-9599332456  |  Email info@delhilegalcompany.com

?Frequently asked questions

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When did the Income-tax Act, 2025 come into force?

On 1 April 2026. It applies to income of tax year 2026-27 (FY 2026-27) onwards. Income of FY 2025-26 is still governed by the Income-tax Act, 1961 and assessed in assessment year 2026-27.

Have corporate tax rates changed for Indian subsidiaries?

No. The concessional 22% regime and the regular regime continue. The Finance Act, 2026 did, however, make MAT a final tax at 14% for companies in the regular regime and cap the use of brought-forward MAT credit.

Which section now covers TDS on payments to a foreign parent?

Section 393 of the Income-tax Act, 2025, which consolidates non-salary TDS. Payments to non-residents fall under Section 393(2), and TDS returns use numeric payment codes instead of section numbers.

What replaced Form 10F?

Form 41 under the Income-tax Rules, 2026. The foreign recipient should provide it with a valid Tax Residency Certificate to claim treaty rates.

What replaced Forms 15CA and 15CB?

Form 145 (the remitter's declaration) and Form 146 (the chartered accountant's certificate) for remittances from 1 April 2026. Forms 15CA and 15CB filed for earlier remittances remain valid.

What replaced Form 3CEB?

Form 48, the new transfer pricing accountant's report, which applies from tax year 2026-27 and asks for more detailed benchmarking information.

Do we need to amend our intercompany agreements?

Not immediately. The CBDT has said contracts need not be amended merely because of the new Act. However, references to old section numbers should be updated at renewal to avoid confusion.

Are our accumulated losses and MAT credit safe?

Business losses carry forward into the new Act without restarting the carry-forward period. Brought-forward MAT credit can be used subject to the conditions and caps introduced by the Finance Act, 2026.

How are buybacks taxed now?

Under the Finance Act, 2026, buyback proceeds are taxed as capital gains in the hands of shareholders, with additional tax for promoters. Foreign shareholders should also check the capital gains article of their treaty.

Does the new Act affect pending tax disputes?

No. Proceedings pending on 1 April 2026, including assessments, appeals and reassessments, continue under the 1961 Act.