A company incorporated in India under the Companies Act, 1956/2013, would always be a ‘resident’ in India. With effect from 1 April 2016, a foreign company is regarded as a ‘resident’ in India only if, during the previous year, the Place of Effective Management.
(POEM) of the company was in India(i.e., key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made in India). Certain guidelines have been issued in connection with the determination of POEM.
The Tax Incidence of companies depends on their residential status. Therefore, a foreign company can avoid taxation of its global income if it can prove that its POEM is not in India. In that case, only its income accruing or arising in India, or deemed to accrue or arise in India, or received in India would be taxable in India.
It would be essential to note that POEM rules would not apply to a foreign entity if its turnover or gross receipt is less than INR 500 million.
|Income received or deemed to be received in India||Taxable||Taxable|
|Income accruing or arising or deemed to accrue or arise in India||Taxable||Taxable|
|Income accruing or arising outside India from:
• Business controlled in India or profession set up in India
• Any other source