Insights · India-US Corridor
GILTI Becomes NCTI: How US Tax Reaches Your Indian Subsidiary from 2026
From 2026 GILTI is replaced by NCTI. How the US taxes the profits of an Indian subsidiary owned through a US parent, and what founders should model.
A US company that owns an Indian subsidiary is taxed in the US on that subsidiary’s profits in the year they are earned, under the regime known until 2025 as GILTI and, for tax years beginning after 31 December 2025, as Net CFC Tested Income. The effective US rate on that income rises from about 10.5% to about 12.6%. Because India taxes companies at about 25%, a US corporate parent often ends up with little or no residual US tax, but only if the calculation and the elections are done properly. Individual US owners are in a much worse position.
Key figures
- Effective rate on GILTI for a US corporation: 10.5% through 2025 (Bipartisan Policy Center)
- About 12.6% on Net CFC Tested Income from 2026: the deduction falls from 50% to 40% of the inclusion (EY)
- The 10% return on tangible assets that used to be excluded is removed
- Credit for foreign taxes on this income rises from 80% to 90%
- US federal corporate rate: 21%. Indian corporate rate under the concessional regime: 25.17%
How the regime works
A foreign company is a controlled foreign corporation if US shareholders, each holding at least 10%, together own more than 50% of it. An Indian private limited company wholly owned by a Delaware C-Corp is one. Each year the US shareholder includes its share of the subsidiary’s tested income, broadly its net profit with some exclusions, in its own US taxable income, whether or not any dividend is paid.
A US corporate shareholder then gets two reliefs. It deducts a percentage of the inclusion, 50% through 2025 and 40% from 2026, which is what produces the 10.5% and 12.6% effective rates. It also claims a credit for the Indian corporate tax paid on that income, 80% of it through 2025 and 90% from 2026.
What changed from 2026
| GILTI, through 2025 | NCTI, from 2026 | |
|---|---|---|
| Deduction for US corporations | 50% | 40% |
| Effective US rate before credits | 10.5% | About 12.6% |
| Exclusion for 10% return on tangible assets | Yes | Removed |
| Foreign tax credit allowed | 80% | 90% |
| Foreign rate at which no residual US tax generally remains | About 13.1% | About 14% |
The removal of the tangible asset exclusion matters for manufacturing subsidiaries, which previously sheltered part of their income. For an Indian software or services subsidiary with few fixed assets it makes little difference.
Why a US C-Corp with an Indian subsidiary usually owes little
Take an Indian subsidiary with profit of USD 1,000,000 paying Indian tax of about USD 251,700. From 2026 the US parent includes the income, deducts 40%, and computes US tax of about USD 126,000 on the rest. It can credit 90% of the Indian tax, about USD 226,500, which exceeds the US tax. No residual US tax arises on this income. Two practical points sit behind that simple result:
- Interest and head-office expenses of the US parent can be allocated against this income when computing the credit limit, which can create US tax even when the foreign rate is high. The 2025 law narrowed this allocation, which helps.
- Excess credits in this category cannot be carried forward or back. A year in which the Indian subsidiary pays little tax, for example because of a loss carry-forward or a timing difference, can produce US tax that is never recovered.
The regulations also allow an election to exclude income taxed abroad at more than 90% of the US rate, which is 18.9%. Indian-taxed income normally clears that bar. The election applies to all controlled foreign corporations of the group and has knock-on effects, so it is modelled, not assumed.
Individuals and LLCs are different
A US citizen or green card holder who owns an Indian company directly, or through an LLC taxed as a partnership, gets neither the deduction nor the credit for Indian corporate tax by default. The inclusion is taxed at ordinary rates of up to 37%. The usual fixes are an election under section 962 to be taxed as if a corporation, or holding the Indian company through a C-Corp. This affects many Indian-origin founders who became US tax residents after setting up their Indian company, and it should be addressed in the first US filing year.
Compliance
- Form 5471 for each controlled foreign corporation, with a USD 10,000 penalty per form for non-filing
- Form 8992 to compute the inclusion, and Form 1118 for the foreign tax credit
- Indian financials converted to US tax principles, in US dollars, each year
- Transfer pricing documentation in both countries for services and intellectual property charges between the two companies
Getting cash to the US parent
Dividends from the Indian subsidiary bear Indian withholding at the India-US treaty rate of 15% where the US company holds at least 10% of the voting stock. In the US, the dividend is generally not taxed again, either because it is previously taxed income or because of the deduction for foreign dividends, and the Indian withholding tax is largely not creditable. That 15% is therefore a real cost, and it is one reason groups price intercompany services carefully instead of accumulating profit in India. See our profit repatriation service.
Related reading: Delaware flip for Indian startups, Form 5472 for Indian-owned US LLCs and reverse flip to India. Our India-US cross-border tax team models these inclusions alongside the Indian computation.