GILTI Becomes NCTI: How US Tax Reaches Your Indian Subsidiary from 2026
US owners of foreign subsidiaries are taxed under the GILTI regime — renamed Net CFC Tested Income (NCTI) for tax years beginning after 31 December 2025 — and the effective corporate rate on that income rises from about 10.5% to roughly 12.6%. For a US parent with an Indian subsidiary, this anti-deferral tax is often the decisive factor in how the group is structured.
What changed under the 2025 law
Alongside the rate increase, the QBAI deduction — which used to shelter a routine return on tangible assets — is eliminated, and the limitation on indirect foreign tax credits rises from 80% to 90% for C corporations. The practical effect: capital-intensive foreign subsidiaries that previously generated little or no GILTI can now produce sizeable NCTI inclusions.
Why it matters for India-US groups
An Indian operating company owned by a US parent is a controlled foreign corporation. Its profits can be pulled into the US parent’s tax base currently, rather than deferred until dividends are paid. Choosing the right entity type, making a Section 962 election where useful, and coordinating with India’s own 22% / 15% rates and the foreign tax credit are what keep the combined rate sensible.
Key figures
- Effective GILTI rate 10.5% through 2025 (Bipartisan Policy Center)
- Rises to roughly 12.6% from 2026; QBAI deduction eliminated; indirect FTC limit up from 80% to 90% (EY)
- US federal corporate rate: 21%
Frequently asked questions
How does US tax apply to an Indian subsidiary owned by a US company?
Through the GILTI/NCTI anti-deferral regime. The Indian subsidiary is a controlled foreign corporation, and its tested income can be taxed currently in the hands of the US parent at an effective rate of about 10.5%, rising to roughly 12.6% from 2026.
What is the difference between GILTI and NCTI?
NCTI (Net CFC Tested Income) is the renamed and revised GILTI regime for tax years beginning after 31 December 2025. It raises the effective rate, eliminates the QBAI deduction, and increases the indirect foreign tax credit limit from 80% to 90%.
By Vijay Dhawan, Managing Partner, LexVerge LLP. Last updated 2 July 2026. This article is general information, not tax advice; confirm the current position for your facts before acting.
