Introduction
Foreign companies planning to operate, sell, provide services, or invest in India must understand a layered tax environment: GST (indirect tax on supply of goods and services), corporate/income tax (direct tax on income), and other sector- or transaction-specific levies. This guide explains the practical rules, registration requirements, and compliance steps that matter most to non-resident enterprises.
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Overview: Tax Regime for Foreign Businesses
India taxes cross-border activity through a combination of domestic law, international tax treaties (DTAA), and anti-avoidance rules. Key concepts to keep in mind:
- Permanent Establishment (PE): Business profits are generally taxable in India only if the foreign company has a PE here under domestic law or applicable DTAA.
- Source vs Residence: India taxes income sourced in India regardless of the recipient’s residence — subject to treaty relief where applicable.
- Indirect tax obligations: GST can apply even where there is no PE, depending on the nature of supply and place of supply rules.
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GST: When & How It Applies to Foreign Entities
Does GST apply to foreign suppliers?
Yes — GST applies to the supply of goods or services consumed in India under India’s place-of-supply rules. Whether a foreign supplier must register depends on the type of supply, recipient, and value.
Key scenarios where GST commonly applies
- Services supplied to Indian consumers (B2C): Place of supply often India — GST may apply and the foreign supplier may be liable under reverse charge if the Indian recipient is not required to withhold.
- Services to Indian businesses (B2B): Many B2B services are taxable in India; the recipient may be required to pay GST under reverse charge, but registration may still be necessary in some cases.
- Import of services: Import of services attracts GST under reverse charge; the Indian recipient typically discharges this through their GST returns.
- Overseas supplies (export): Supplies exported from India may qualify as zero-rated supplies where an Indian supplier exports goods or supplies services from India.
Registration thresholds & non-resident registration
Non-resident taxable persons (foreign suppliers with taxable supplies in India) often need to register for GST even if they do not have a fixed presence in India. Special provisions apply for:
- Non-Resident Taxable Person registration (for suppliers making taxable supplies in India).
- Composition & threshold rules — usually not available to non-residents.
Properly classify the supply and determine the 'place of supply' before deciding on registration.
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Corporate Tax Considerations
When is business profit taxable in India?
Business profits earned by a foreign company are taxable in India if attributable to a Permanent Establishment (PE) in India or if Indian-sourced income is chargeable under the Income-tax Act. DTAAs may modify taxation rights — for instance, by limiting tax to the PE.
Tax filing and compliance
If a foreign company has taxable income in India, it must:
- Obtain a PAN (Permanent Account Number) for Indian tax filings.
- File income-tax returns and maintain books of account as required by law.
- Apply treaty provisions (DTAA) where appropriate and claim relief via credit or exemption mechanisms in the home jurisdiction.
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Other Relevant Taxes (Equalisation Levy, Withholding, Stamp Duty)
Several non-standard levies affect cross-border operations:
- Equalisation Levy: A levy on specified digital services and online advertisements provided to Indian residents, designed to tax digital transactions where no PE exists. Check the scope carefully — different rules apply for agents, platforms and marketplace operators.
- Withholding Taxes (TDS): Payments to non-residents (fees for technical services, royalties, interest) may be subject to withholding under section 195 of the Income-tax Act. DTAAs may reduce withholding rates.
- Stamp Duty & Transfer Taxes: For real property or certain transfers, state laws (stamp duty) and specific transfer taxes may apply.
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Registration & Compliance Checklist
Before starting operations, foreign businesses should run through this checklist:
- Determine PE risk: Map activities to the PE definition in domestic law and applicable DTAA.
- Decide on business form: Liaison office, branch, subsidiary, or project office — each has different tax implications.
- Apply for PAN: Necessary for direct tax compliance.
- GST registration: If taxable supplies exist in India, register as a non-resident taxable person.
- Withholding setup: Ensure Indian payers apply correct TDS; foreign entity should provide TRC/Form 10F where treaty benefits are claimed.
- Transfer pricing documentation: If international transactions occur with related parties, prepare contemporaneous documentation as per Indian rules.
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Practical Examples & Scenarios
Example 1 — Software company outside India selling SaaS to Indian companies (B2B): Place of supply rules may treat the supply as exported or as supplied in India. Indian recipients may be required to pay GST under reverse charge; the SaaS provider should check whether GST registration is required.
Example 2 — Foreign consultancy providing on-site services in India: If consultants visit India and create a taxable presence or constitute a PE, business profits for the period may be taxable in India and require corporate tax filings and TDS compliance.
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Managing Risk: GAAR, Transfer Pricing & Treaty Issues
India enforces anti-avoidance measures:
- GAAR: General Anti-Avoidance Rules can deny tax benefits for arrangements lacking commercial substance even if they comply with the letter of the law.
- Transfer Pricing: Related-party international transactions must follow arm’s-length principles and documentation rules.
- Treaty Abuse & Substance: Courts and tax authorities scrutinise treaty shopping; genuine substance and economic activity in the treaty-resident jurisdiction mitigate risk.
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Conclusion
For foreign businesses, India presents both opportunity and complexity. Begin with a careful assessment of the business model, PE risk, and the nature of supplies. Register for GST where required, secure PAN for tax filings, and ensure treaty and transfer pricing positions are documented. Early tax planning, supported by robust documentation and compliance, reduces disputes and supports sustainable operations in India.
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Internal Links (Cluster) —
- GST, Corporate Tax & Other Taxes for Foreign Businesses Operating in India
- Double Taxation Avoidance Agreements (DTAA): How Foreign Companies Can Save Taxes in India
- Repatriation of Profits: RBI Guidelines for Foreign Companies in India
- Banking, Foreign Exchange & FEMA Compliance for International Firms
- Permanent Establishment in India: What Foreign Businesses Must Know
- How to Register a Liaison Office in India: Rules for Foreign Companies
- Setting Up a Wholly Owned Subsidiary in India as a Foreign Investor
Authoritative Links:
Income Tax Department of India
Central Board of Indirect Taxes & Customs (CBIC) / GST
Reserve Bank of India
Ministry of Finance, Government of India
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