A: The extent of foreign enterprises’ taxability in India
Companies are taxed in India on their income based on where they reside. While a non-resident corporation will only be taxed on income received, accumulated, or arising in India, a company having residential status in India will be taxed on all of its worldwide income, whether earned in India or outside of India.
A firm is deemed to have been a resident of India in any prior year under Section 6(3), Residential Status and scope of total income, if
(i) It is an Indian company; or
(ii) Its place of effective management, (P.O.E.M.) in that year, is in India. Place of effective management means a place where key management and commercial decisions, that are necessary for the conduct of the business of an entity as a whole are, in substance made.
However the provisions of Section 6(3)(ii) are not applicable to companies with turnover up to INR 500 million in a financial year.
| Section | Type of company | Residential Status | Taxability |
| 6(3)(i) | Indian company | Always resident in India | Tax on global income |
| 6(3)(ii) | A Non resident company whose turnover exceeds INR 500 million | Will be deemed to be a Resident in India | Global Income attributable to the company will be taxed in India. |
| 6(3)(ii) | A Non resident company whose turnover is upto INR 500 million | Always Non resident in India | Tax only on Income received, accrued or arise in India |
B:Taxation Rate
- Non resident or foreign companies are taxed at 40% of the total income
- Plus: An additional surcharge @2% of tax where total income exceeds INR 10 million but do not exceed INR 100 million or additional surcharge @5% of tax if total income exceeds INR 10 million
- Plus: Health & Education Cess: An additional cess of 4% of such tax and surcharge shall be added.
C: Minimum Alternate Tax
Foreign corporations without a permanent establishment (PE) in India are not subject to the MAT regulations. The Finance Act of 2018 has stated, however, that the MAT provisions shall not apply to foreign companies whose total income is solely derived from the shipping business, the exploration of mineral oils, the business of aircraft, and the civil construction of turnkey projects, and where the income thereon is offered to tax in accordance with specific provisions provided under the Act.
If the tax payable on such income is less than 15% (exclusive of surcharge, education cess, etc.), the capital gains from the transfer of securities, interest, royalties, and fees for technical services accruing or arising to a foreign company (which has a PE in India) have been excluded from chargeability of MAT. Additionally, any expenses are debited.
