Question 1

When is a foreign company taxable in India?

Accepted Answer

A foreign company is taxable in India on: (a) income received or deemed received in India; (b) income accruing or arising in India; and (c) if treated as Indian resident due to POEM (Place of Effective Management) under Section 6(3). Foreign companies with a Permanent Establishment (PE) in India are taxed on income attributable to that PE.

Question 2

What is the tax rate for a foreign company?

Accepted Answer

The basic corporate tax rate is 40% (vs. 22–25% for domestic companies). Surcharge: 2% for income ₹1–10 crore; 5% above ₹10 crore. Health and education cess: 4%. Effective maximum rate approximately 43.68%. Foreign companies cannot opt for Section 115BAA or 115BAB concessional rates — those apply only to domestic companies.

Question 3

How are royalties and technical fees paid to a foreign company taxed?

Accepted Answer

Under Section 115A, royalties and FTS paid by an Indian resident to a foreign company are taxed at 20% (plus surcharge and cess) on gross receipts — no expense deduction. If the applicable DTAA provides a lower rate (e.g., 10%), the foreign company claims the DTAA benefit by providing a Tax Residency Certificate and Form 10F to the Indian payer.

Question 4

What is POEM and what are its consequences?

Accepted Answer

POEM under Section 6(3) deems a foreign company resident in India if the Board meets predominantly in India and key decisions are made in India. CBDT Circular 8/2017 provides an "active business outside India" safe harbour: if passive income < 50% of total income and majority assets/employees/payroll are outside India, POEM is presumed to be outside India. POEM-resident: taxed at domestic rates on worldwide income.

Question 5

What forms must a foreign company file in India?

Accepted Answer

ITR-6 annually. Form APR (Annual Performance Report) by 30 September each year if it has an LO/BO/PO in India. Form 3CEB (transfer pricing report) if transactions with associated enterprises exceed the threshold. Form 27Q quarterly TDS returns for payments to other non-residents. Failure to file ITR-6 attracts penalty under Section 271F.

Itr Foreign Company

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