Recent Policy and News Updates (as of early 2026)
- Equalisation Levy Clarifications (November 2025): The Ministry of Finance provided clarifications on the Equalisation Levy for non-resident e-commerce operators providing digital services to Indian residents in FY 2025-26. No major changes were announced for FY 2026-27, but the government continues to monitor digital economy taxation.
- Simplified TDS Compliance (December 2025): The Central Board of Direct Taxes (CBDT) issued Circular No. 10/2025, effective April 1, 2026, offering guidelines for simplified TDS compliance for non-residents opting for lower TDS rates under Double Taxation Avoidance Agreements (DTAA).
- BEPS 2.0 Anticipation (January 2026): Experts expect the finalization of the BEPS 2.0 framework and domestic legislative alignment in 2026, which could introduce global minimum tax rules impacting large multinational enterprises (MNEs) in India.
- GST Rate Rationalization Discussions (December 2025): The GST Council indicated potential merging of some GST slabs for FY 2026-27 to simplify compliance, though no concrete decisions have been made.
These updates highlight the dynamic nature of India’s tax environment and the need for foreign companies to adapt their tax strategies.
Corporate Tax for Foreign Companies in India
Foreign companies are taxed based on their residency status and business presence in India.
- Types of Foreign Entities: Taxation distinctions are made between Foreign Companies vs. Permanent Establishment (PE), Branch Offices, Liaison Offices, Project Offices, and Indian Subsidiary Companies of Foreign Parents.
- Taxability of Income for Non-Residents: Income is taxable based on its source and nature, including business income attributable to a PE, capital gains (direct and indirect transfers), royalty, fees for technical services (FTS), interest, dividends, and rental income.
- Applicable Corporate Tax Rates (2026): The standard corporate tax rate for foreign companies is generally 40%, plus applicable surcharge and cess. Concessional rates and specific regimes like the Equalisation Levy may also apply.
- Double Taxation Avoidance Agreements (DTAAs): DTAAs are crucial for reducing tax burdens and preventing double taxation. Claiming DTAA benefits requires a Tax Residency Certificate (TRC) and Form 10F. Recent amendments or renegotiations can impact foreign companies. For example, a company from Singapore earning royalty income from India can benefit from the India-Singapore DTAA, potentially leading to a reduced tax rate upon furnishing a TRC.
- Key Compliance Requirements: These include obtaining a Permanent Account Number (PAN), filing Income Tax Returns (ITR), adhering to the advance tax payment schedule, and complying with transfer pricing regulations and documentation.
Goods and Services Tax (GST) for Foreign Companies
Foreign companies must navigate the indirect tax regime for the supply of goods and services.
- GST Registration for Non-Residents: Registration may be mandatory or voluntary based on thresholds. An Authorized Representative is often required for compliance, especially for Casual Taxable Persons and E-commerce Operators.
- Types of GST: Understanding IGST (Inter-State GST), CGST (Central GST), and SGST/UGST (State/Union Territory GST) is essential, depending on whether supplies are inter-state or intra-state, and governed by Place of Supply rules.
- GST on Import and Export Transactions: Exports are typically zero-rated with refund mechanisms, while imports attract IGST.
- Reverse Charge Mechanism (RCM): This mechanism may apply to specific services received by Indian recipients from non-residents, shifting the tax payment obligation to the recipient.
- GST Compliance and Filings: Requirements include monthly/quarterly GSTR filings (GSTR-1, GSTR-3B), annual returns (GSTR-9/9C) and reconciliation, and understanding Input Tax Credit (ITC) eligibility, conditions, and restrictions.
Tax Deducted at Source (TDS) for Foreign Companies
Understanding withholding tax obligations is critical.
- Applicability of TDS on Payments to Non-Residents: TDS applies to specific income categories paid to non-residents, including interest, royalty, FTS, rent, payments to contractors, and professional services, as outlined in sections like 195, 194LA, 194LB, and 194LBA of the Income Tax Act.
- Lower TDS Certificate & DTAA Benefits: Foreign companies can apply for a lower TDS rate or nil deduction certificate (Form 13) and utilize DTAA provisions to reduce applicable TDS rates.
- TDS Compliance Requirements: This involves obtaining a Tax Deduction and Collection Account Number (TAN), timely deposit of TDS, filing TDS returns (Form 27Q for non-residents), and issuing TDS certificates (Form 16A) to deductees.
Other Important Tax Considerations
- Advance Pricing Agreements (APAs): For certainty in transfer pricing.
- General Anti-Avoidance Rules (GAAR): Understanding their implications.
- Faceless Assessment Schemes: Their operational aspects.
- Customs Duties & Foreign Trade Policy (FTP): Updates relevant to foreign trade.
- State-level taxes: Such as stamp duty and property tax.
Comparison Table: Key Taxes for Foreign Companies in India
| Tax | Applicability | Rate (Standard) | Key Compliance |
| Corporate Tax | Income earned by a foreign company from business operations or other sources in India. | 40% + Surcharge & Cess (subject to DTAA) | PAN registration, ITR filing, Advance Tax payment, Transfer Pricing compliance |
| GST | Supply of goods and services within India. | Multiple slabs (0%, 5%, 12%, 18%, 28%) | GST registration (if applicable), GSTR filings (GSTR-1, GSTR-3B, GSTR-9), ITC reconciliation |
| TDS | Payments made to non-residents for specific incomes (e.g., interest, royalty, FTS). | Varies based on nature of payment and DTAA provisions | TAN registration, TDS deposit, TDS returns (Form 27Q), TDS certificate issuance (Form 16A) |
| Equalisation Levy | Specified digital services provided to Indian residents by non-resident e-commerce operators (subject to certain thresholds). | 6% | Monthly payment, annual statement |
*Disclaimer: Tax rates and regulations are subject to change. Consult with a tax professional for the most up-to-date information.
Frequently Asked Questions (FAQs)
Q1: Is a foreign company required to register for GST in India if it only provides online services to Indian customers?
Yes, if the foreign company provides ‘Online Information and Database Access or Retrieval Services’ (OIDAR services) to non-taxable online recipients in India, it generally requires GST registration as a non-resident OIDAR service provider.
Q2: What is the significance of a Tax Residency Certificate (TRC) for foreign companies in India?
A TRC, issued by the tax authorities of the resident country, is crucial for foreign companies to claim benefits under a Double Taxation Avoidance Agreement (DTAA) with India, such as lower withholding tax rates or exemption from certain taxes, by proving their tax residency.
Q3: How does the Equalisation Levy interact with Corporate Tax for digital services?
The Equalisation Levy is a separate levy on specified digital services and is distinct from corporate income tax. Income on which Equalisation Levy is paid is generally exempt from corporate tax under Section 10(50) of the Income Tax Act, provided certain conditions are met.
Q4: What documents are typically required for lower TDS rate applications for non-residents?
As per CBDT Circular No. 10/2025 (effective April 2026) and existing norms, documents typically include the Tax Residency Certificate (TRC), Form 10F, engagement contract, invoices, and a declaration stating no Permanent Establishment (PE) in India (or details thereof), among others.
Conclusion
Navigating India’s tax landscape as a foreign company necessitates a thorough understanding of corporate tax, GST, and TDS regulations, along with staying updated on policy changes and compliance requirements. Partnering with experts is recommended to ensure regulatory adherence and optimize tax strategies.
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