Budget 2026: What is corporate tax, its importance, and can companies opt for a lower concessional tax rate?

Budget 2026 | Union Finance Minister Nirmala Sitharaman’s presented her ninth consecutive Budget in the Parliament on February 1 2026. The Finance Minister emphasised that the government has consistently chosen reform over rhetoric and addressed global uncertainty.

The Union Budget is a key moment for businesses, investors and markets, as it sets the rules that govern corporate earnings and expansion. In Budget 2026, corporate taxation will once again be closely watched for the signals it sends on competitiveness, ease of doing business and the government’s broader growth strategy.

Corporate tax definition

Corporate tax is the tax levied by the government on the profits earned by companies and firms operating in India. Simply put, after a company earns revenue and deducts expenses such as salaries, raw material costs and operating expenses, the remaining profit is taxed by the government as corporate tax. This tax applies to both domestic companies and foreign companies earning income in India, though the rates and rules may differ.

Can companies choose a lower concessional tax rate?

In India, corporate tax is a major source of government revenue. Over the years, the system has been restructured to make India more attractive for investment. Companies can choose a lower concessional tax rate if they forgo certain exemptions and incentives, a move aimed at simplifying taxation and improving compliance. Special rates also exist for new manufacturing companies to encourage production and job creation.

Importance of corporate tax

Corporate tax policy plays a direct role in shaping business decisions. Lower or stable tax rates can boost investment, expand capacity and improve global competitiveness, while frequent changes or higher burdens may discourage expansion. For the government, corporate tax collections reflect the health of the economy—strong collections signal robust business activity and profitability.

In the Union Budget, corporate tax announcements are closely analysed for clues on tax stability, incentives for specific sectors and the balance between revenue needs and growth ambitions. For companies and investors alike, corporate tax remains a critical link between policy intent and economic outcomes.