1. What is the Tax Year in India?
The tax year (also known as ‘Financial Year’) in India starts from 1 April of one year and ends on 31 March of the subsequent year i.e., 1st April to 31st March. The income tax on income earned in the Financial Year require to be reported in the next year (also known as ‘Assessment Year’).
2. What is the definition of a non-resident company?
The non-resident company means the company which is not a resident company under the Income Tax Act. The resident company means either a company registered in India or a place and management of such a company is in India.
3. Whether a non-resident company is taxable in India?
The non-resident companies normally taxable on the income earned from a business connection in India or other Indian sources. The non-resident companies are taxable under Income Tax Act subject to the double taxation avoidance agreements with the country of residence.
4. What is the corporate tax rate of non-resident companies having a permanent establishment in India?
The non-resident Companies having the permanent establishment are taxable in India under the Income Tax Act as below:
- Companies with an income exceed INR 100 million: 40 per cent plus a surcharge of 5 per cent plus 4 per cent health and education cess on income-tax inclusive of surcharge bringing the effective tax rate to 43.68 per cent.
- Companies with an income which exceeds INR 10 million but does not exceed INR 100 million: 40 per cent plus surcharge of 2 per cent plus 4 per cent health and education cess on income-tax inclusive of surcharge bringing the effective rate of 42.432 per cent.
- Companies with an income of up to INR 10 million: 40 per cent plus 4 per cent health and education cess on income tax bringing the effective rate of 41.6 per cent.
5. When a non-resident company considered to have the permanent establishment in India?
The concept of a permanent establishment is defined in the Double Tax Avoidance Agreement between India and foreign countries. The non-resident company would consider as a permanent establishment in India in case such non-resident company would have a fixed place of business in India or doing business in India through:
- a place of management, branch, office, factory, workshop, warehouse, etc. or
- building site or construction, installation or assembly project or supervisory activities in connection therewith where such site, project or activities continue for a specified period, or
- furnish service for a specified period, or
- an agent (other than the independent agent) who habitually exercises an authority to conclude contracts or regularly deliver goods or merchandise or habitually secure orders on behalf of the foreign company.
In case the non-resident company would be considered to have a permanent establishment in India, the business income of such non-resident company attributable to the business carried out in India is become taxable in India and would require to do all the compliances (such as filing of the tax return ) as per Income Tax Act in India.
6. What is the income tax rate of fee for technical services, royalty and dividend earned by non-resident company having no permanent establishment in India?
The income tax rate on the non-resident company having no permanent establishment in India under the Income Tax Act are as below:
- Fee for technical services: 10 per cent plus surcharge and health and education cess
- Royalty: 10 per cent plus surcharge and health and education cess
- Dividend: 20 per cent surcharge and health and education cess
The income Tax rate on the fee for technical services, royalty, dividend and interest also prescribed under the double taxation avoidance agreement with the respective countries. The double taxation avoidance agreements override the Indian Income Tax Act provisions to the extent they are more beneficial to non-resident companies.
7. Whether non-resident companies can obtain the benefit of the Double Taxation Avoidance Agreement?
The double taxation avoidance agreements override the Indian Income Tax Act provisions to the extent they are more beneficial to non-resident companies.
8. Whether it is mandatory to obtain the Tax ID (also known as Permanent Account Number) by the non-resident company in India?
The non-resident company having the permanent establishment in India require to obtain the Tax ID in India. The non-resident company having no permanent establishment advisable to obtain the Tax ID to obtain the certificate of income deduct by the payer. In the absence of Tax ID, the non-resident company require to provide the following information:
- Name, e-mail id, contact number
- Address in the country of residence
- Tax Residency Certificate, if the law of the country of residence provides for such certificate
- Tax Identification Number in the country of residence. Where TIN is not available, a unique identification number is required to be furnished through which is identified in the country of residence
9. Whether it is mandatory to submit the Income-tax return in India?
The non-resident company having the permanent establishment in India require to submit an income tax return and other compliances required under the Income Tax Act. The non-resident company shall not be required to file the income tax return if total income consist of dividend, interest, the fee for technical services & royalty and income tax at the prescribed rate is deducted by the payer.
10. Whether any person requires to withhold tax of non-resident company in India?
The person responsible for paying to a non-resident company any interest or any other sum chargeable under the provisions of the Income Tax Act shall, at the time of credit of such income to the account of the payee or at the time of payment deduct tax at the rates in force. The obligation for deduction of Withholding Tax under Section 195 of the Income Tax Act are as follows:
- Payer: Any person
- Payee: Non-resident company
- Amount: Interest or any other sum (other than Salaries) and Chargeable under Income Tax Act
- Time: Payment or Credit whichever is earlier
- Rate: Rate in force under the Income Tax Act or at the rates specified in the relevant Double Taxation Avoidance Agreement whichever is beneficial to the taxpayer.
11. What documents required to submit by the non-resident company to obtain the payment from the resident company?
The non-resident company require to submit the following documents to the resident companies on the issuance of invoice or payment whichever is earlier:
- Form 10FA under Income Tax Act
- Permanent Account Number
- Name, e-mail id, contact number
- Address in the country of residence
- Tax Residency Certificate, if the law of the country of residence provides for such certificate
- Tax Identification Number in the country of residence. Where TIN is not available, a unique identification number is required to be furnished through which is identified in the country of residence
12. Whether a non-resident company can seek an advance ruling from the income tax department?
The non-resident company can seek an advance ruling from the income tax to determine income tax liability for the transaction proposed to be undertaken or whether the transaction proposed to be undertaken is an impermissible avoidance arrangement under the General Anti Avoidance Rules (GAAR).
13. Whether the income tax department can issue the notice to the non-resident company?
The Income Tax Department can issue the following notices to the non-resident company:
- Notice under Section 142(1) – Enquiry before the assessment
- Notice under Section 143(2) – Scrutiny Notice
- Notice under Section 143(1) – Letter of Intimation
- Notice under Section 148 – Income escaping assessment
- Notice under Section 156- Notice of Demand
- Notice under Section 139(9) – Defective Return
- Notice under Section 245 – Set off refunds against tax remaining payable
14. What type of information and documents which the income tax department may seek from the non-resident company?
The Income Tax Department may ask books of account along with other related documents such as financial records, vouchers, invoices, agreements, bank statements and any other evidence which are necessary for the assessment and scrutiny of the non-resident company. The income tax department can interview either the employee or authorised representative appointed by such non-resident company.
15. Whether non-resident company may apply for the lower withholding tax certificate to the income tax department?
The non-resident company may apply for the lower tax deduction certificate under Section 195(2) or Section 197 of the Income Tax Act.
16. Whether a non-resident company can pay taxes in India?
The non-resident company can pay taxes through a bank account in India (Special Non-resident Rupee accounts for certain categories of transactions) or through an agent located in India.
17. Whether directors of the non-resident company require to obtain any registration in India?
The directors of the non-resident company do not require to obtain any registration in India unless such director earned any income received/deemed to be received or accrue/deemed to be accrued in India subject to the double taxation avoidance agreements.
18. Whether employees of the non-resident company can work in India?
The employee of the non-resident company can work in India. The employee requires to obtain the Employment VISA, Permanent Account Number, Foreigners Regional Registration Office (FRRO) registration in India.
19. Whether employees of the non-resident company are taxable in India?
The salary earned by the employees of the non-resident company in India is taxable under the Income Tax Act or Double Taxation Avoidance Agreement whichever is beneficial to the employees. Normally, the employee of the non-resident company is not taxable, in case the period of stay of an employee not exceeding 183 days and the non-resident company does not have a permanent establishment in India.
20. Whether employees of the non-resident company can do sales promotion activities in India?
The non-resident company can do the sale promotion activities in India, however, recently it was noticed that the income tax department treated such activities as a permanent establishment in India and make such non-resident companies taxable in India. Therefore, it is important to carefully evaluate the income tax implication before initiating such activities.
21. Whether the office premises of liaison office can become a permanent establishment of the non-resident company?
The office premises of liaison office regularly available by disposal for the employees of the non-resident company can be considered as a fixed place the permanent establishment of the non-resident company.
22. Whether price negotiation by the Indian subsidiary of the non-resident company with the Indian customer of the non-resident company considered as an authority to conclude the contract?
The Indian courts held that the Indian subsidiary on the behalf of the foreign company involves in the negotiation, technical specifications and price negotiations with the Indian customers of the non-resident company constitute as an authority to conclude the contract.
23. Whether the non-resident company consider having a service permanent establishment where a presence in India is less than the threshold limit?
The Indian courts held that Services can be rendered without the physical presence of employees of taxpayer since services can be provided via various virtual modes (like email, internet, video conference, remote access, etc.) in the present age of technology. Therefore, it is not necessary to have a presence in India to determine service permanent establishment in India.
24. Whether employees of the non-resident company require to obtain Tax registration in India?
The non-resident company having the employment VISA for the period more than 180 days / 6 months require to obtain the Tax registration in India.
25. What type of expenses which non-resident company cannot claim as a deduction in India?
The non-resident company having the permanent establishment in India cannot claim the following deduction:
- any expenditure or allowance which is not wholly and exclusively incurred for the business of such permanent establishment or fixed place of the profession in India, or
- any amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to its head office or any of its other offices.
26. Whether a non-resident company must have a registered office in India?
The non-resident company having a permanent establishment in India must have the office in India which are required for the several registrations and compliances in India.
27. What compliances require to be done by the non-resident company under Income Tax in India?
The non-resident company having the permanent establishment require to all compliances such as Income Tax Return, Tax Audit, Goods & Service Tax Returns as applicable to the domestic companies. The non-resident company shall not be required to file the income tax return if total income consist of dividend, interest, the fee for technical services & royalty and income tax at the prescribed rate is deducted by the payer.
28. What are the procedures followed by the Income Tax Department for the assessment of Income Tax of the non-resident company?
The non-resident company are required to file a return of income on or before the specified dates each year. The assessing officer examines the return of income filed by the taxpayers and frames the assessment by applying the provisions under Income Tax.
29. Whether the non-resident company can apply for the Income Tax Refund in India?
The non-resident company can apply for the income tax refund after filing of income tax return on or before the due date under the Income Tax Act.
30. Whether the provision of Transfer Pricing applicable to non-resident companies in India?
The provisions of Transfer Pricing applicable to the international transaction between associated enterprises. The term ‘international transaction’ means a transaction between two or more associated enterprises involving the sale, purchase or lease of tangible or intangible property; provision of services; cost-sharing arrangements; lending/borrowing of money; or any other transaction having a bearing on the profits, income, losses or assets of such enterprises. The associated enterprises could be either two non-residents or a resident and a non-resident; furthermore, a permanent establishment (PE) of a foreign enterprise also qualifies as an associated enterprise. Accordingly, transactions between two non-resident companies can fall under the ambit of Transfer Pricing.
31. Whether a non-resident company sells the share of another non-resident company outside India can be taxable in India?
The Income Tax Department clarified that income from the sale of shares by one non-resident company to another non-resident company is deemed to accrue or arise and taxable in India subject to the following conditions:
- Transfer of any asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.
- The substantially from the assets (whether tangible or intangible) located in India, if, on the specified date, the value of such assets:
- exceeds the amount of INR 100 million; and
- at least fifty per cent of the value of all the assets owned by the company or entity
The provision shall not apply to an asset or capital asset, which is held by a non-resident by way of investment, directly or indirectly, in a Foreign Institutional Investor, Category-I or Category-II foreign portfolio investor.
32. Whether any services provided by the non-resident company outside India can be taxable in India?
The Income Tax Department clarified that income of a non-resident shall be deemed to accrue or arise in India whether such non-resident company: has a residence or place of business or business connection in India or not; or has rendered services in India or not.
33. Whether a non-resident company invests in the Indian company in premium can be taxable in India?
A company, not being a company in which the public are substantially interested, receive from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be treated as Income from Other Source under Section 56 of the Income Tax Act. The investment from the non-resident company is not covered under Section 56 of the Income Tax Act, however, the income tax officer may seek the information about the premium and/or justification of the premium from the investee company.
34. Whether the subsidiary of the non-resident company and non-resident company are considered separate independent companies?
Yes, a subsidiary of the non-resident company and non-resident company are considered as separate independent companies.
35. Whether the subsidiary or employees of subsidiary lead to the permanent establishment in India?
A subsidiary or an employee of the subsidiary may become a permanent establishment of the non-resident company in the following situations:
- The premises of the subsidiary company are available for the disposal of the non-resident company
- The subsidiary or their employee is working as a dependent agent of the non-resident company i.e., concluding the contract on the behalf of the non-resident company.
- The employee of the subsidiary work on the direction or decision of a non-resident company instead of a subsidiary company.
36. Whether an independent back office of the non-resident company in India consider a permanent establishment of the non-resident company?
The independent back office of the non-resident company in India cannot be considered a permanent establishment of the non-resident company.
37. Whether the non-resident company can appeal in India against the order passed by the Income Tax Department?
The non-resident company aggrieved by an order of assessing officer can file an appeal before the Commissioner of Income Tax (Appeal). After the hearing is concluded, Commissioner (Appeals) passes an order in writing, disposing of the appeal and stating the decision on each ground of appeal with reasons. The non-resident company aggrieved by an order of Commissioner (Appeals) can file an appeal before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal is the final fact-finding authority and permits a complete examination of the facts and evidence and passes an order in writing, disposing of the appeal and stating the decision on each ground of appeal with reasons. The parties have the option of appealing further to High Court and finally at the Supreme Court, however, such appeals are limited to ‘Question of Law’.
38. Whether the non-resident company can appeal outside India against the order passed by the Income Tax Department?
The non-resident company can use the Mutual Agreement Procedure which is an alternative dispute resolution covered under most of the Double Taxation Avoidance Agreement between India and various countries to eliminate double taxation. Mutual Agreement Procedure is a valuable resort in the case where the non-resident company finds that taxation is not under the Double Taxation Avoidance Agreement regardless of relief available under the Income Tax Act. Under this scheme, the non-resident company is entitled to approach the competent authority of their country to invoke a Mutual Agreement Procedure. Thereafter, authorities of both countries schedule a meeting and try to resolve the dispute through mutual agreement. The negotiation process is between the competent authorities of countries under the Mutual Agreement Procedure.
39. Whether the non-resident company can appoint an Indian citizen as an agent of the non-resident company in India?
The non-resident company can appoint an Indian citizen as an agent of the non-resident company in India. It is important to note that agent may lead to the permanent establishment of the non-resident company in India.
40. Whether a non-resident company can obtain a bank account in India?
The non-resident company having the branch office, liaison office or project office can obtain a bank account in India. The non-resident company may also obtain special non-resident rupee account for limited purposes subject to the guidelines of reserve bank of India.
41. Whether Equalization Levy applies to non-resident companies?
The Equalisation levy is applied at a rate of 6% on certain specified services such as online advertisement and any provision for digital advertising space or any other facility or service for online advertisement provided by a non-resident having no permanent establishment in India. The Indian company require to deduct the amount of the equalisation levy on payments made for such specified services and to remit the amounts to the government. The Finance Bill 2020 expand the scope of Equalization levy to include consideration received by e-commerce operators from e-commerce supply or services. The Equalisation levy in case e-commerce operators is 2 per cent.
42. Whether non-resident company receives any damages or compensation taxable in India?
The damages or compensation received by the non-resident company is taxable under Section 56 of the Income Tax Act, however, relief can be provided under the Double Taxable Avoidance Agreement.
43. Whether reimbursement of expense to the non-resident company is taxable in India?
The reimbursement of expense cannot be considered as income, and therefore would not be taxable in India.
44. Whether dividend received by the non-resident company is taxable in India?
Due to the recent amendment under the Income Tax Act, the dividend received by the non-resident company is taxable in India under at rate of 20 per cent plus surcharge and cess or Double Taxable Avoidance Agreement whichever is taxable in India under at rate of 20 per cent plus surcharge and cess or Double Taxable Avoidance Agreement whichever is beneficiary to the taxpayer.
45. Whether non-resident company eligible to receive the benefit of Vivad se Vishwas Scheme 2020?
The non-resident company eligible to receive the benefit of Vivad se Vishwas Scheme 2020. The scheme can be availed by the taxpayer in whose case:
- The appeal, Writ petition, Special Leave Petition, is pending before any appellate forum as on 31 January 2020 i.e., specified date.
- The Income-tax authorities, Income-tax Appellate Tribunal or High Court has passed orders in a writ on or before the specified date and the time limit for filing an appeal against such an order has not expired.
- Objections have been filed before the Dispute Resolution Panel however, no directions have not been issued on or before the specified date. Although the Dispute Resolution Panel has issued directions, the final assessment order has not been passed on or before the specified date.
- Application for revision under section 264 of the Income-tax Act, 1961 before the Commissioner of Income-tax is pending as on the specified date.
46. Whether the non-resident company can take credit for income tax paid in India?
The non-resident company can take a credit of income tax paid in India subject to Double Taxation Avoidance Agreement and Income Tax Laws in their home country.
47. Whether the sale of a capital asset by the non-resident company is not taxable in India?
The sale of a capital asset situated in India is taxable in India. The capital asset situated outside India may also taxable in India as explained in Point 29.
48. Whether one non-resident company require to withhold the income tax of another non-resident company?
The non-resident company require to withhold the tax of another non-resident company under Section 195 of the Income Tax Act in case such payment is chargeable to income tax in India under Income Tax Act or Double Taxation Avoidance Agreement.
49. Whether a non-resident company can obtain a digital signature for the compliances under Income Tax?
The non-resident company can submit the income tax return through the digital signature of authorised person in India. Therefore, it is mandatory to obtain a digital signature certificate in India.
50. Whether profit attributable from a business outside India by a non-resident company can be taxable in India?
The profit attributable from a business by a non-resident company in India can be taxable in India. In some cases, it is difficult to estimate or divide the profit attributable from a business in India and outside India. Therefore, it is always advisable to maintain a separate document for each country.
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