Taxation in India for Foreign-Owned Businesses: Key Rules, Rates & Compliance
India offers vast opportunities for non-resident investors, multinational companies, and NRI entrepreneurs—but understanding the taxation landscape is essential for sustainable and compliant operations. From corporate tax to GST, transfer pricing, and TDS obligations, the Indian tax system is comprehensive and must be carefully navigated. At Jain Prachi & Company, we guide foreign-owned businesses through India’s direct and indirect tax frameworks—ensuring full compliance while optimising tax efficiency.
Types of Taxes Applicable to Foreign-Owned Businesses in India
Foreign businesses operating in India—whether through a subsidiary, branch office, LLP, or project office—are subject to the following key tax categories:
1. Corporate Income Tax
Indian subsidiaries and LLPs are taxed as resident entities, while branch and project offices are taxed as foreign entities.
Corporate Tax Rates (FY 2024-25):
| Entity Type | Effective Tax Rate |
| Domestic Company (Turnover ≤ ₹400 Cr) | 25.17% (including surcharge and cess) |
| New Manufacturing Co. (Section 115BAB) | 17.16% |
| LLP | 31.2% |
| Branch / Project Office | 43.68% (Foreign Co. rate) |
Note: These rates include applicable surcharge and health & education cess.
2. Withholding Tax (TDS) on Payments to Non-Residents
If your Indian business makes payments to foreign entities or individuals, Tax Deducted at Source (TDS) applies.
Common Examples:
- Royalty, technical service fees
- Dividend payments
- Interest on ECB or loans
- Payments for import of services
The TDS rate varies depending on the nature of payment and availability of a Double Taxation Avoidance Agreement (DTAA) between India and the recipient’s country.
3. Goods and Services Tax (GST)
GST applies to all supplies of goods and services in India.
Key Considerations:
- GST registration is mandatory if turnover exceeds ₹20 lakh (₹10 lakh in special states)
- Reverse charge mechanism applies to import of services from overseas vendors
- Foreign businesses without a physical presence must appoint a GST representative in India
- Filing monthly/quarterly returns and annual reconciliation is mandatory
4. Transfer Pricing Regulations
Indian subsidiaries or group companies transacting with related foreign entities must comply with transfer pricing rules.
Requirements:
- Maintain an arm’s length price for all cross-border transactions
- Prepare and maintain Transfer Pricing Documentation (TPD)
- File Form 3CEB annually with a Chartered Accountant’s report
Non-compliance can lead to severe penalties and adjustments by tax authorities.
5. Dividend Distribution and Repatriation Taxes
Dividends paid by Indian companies to foreign shareholders are subject to TDS.
Rate: 20% + surcharge + cess (may be reduced under applicable DTAA)
Repatriation of profits (in case of branch/project offices) also attracts withholding tax, depending on the nature of remittance.
Other Key Tax Obligations
- Advance Tax: Applicable if estimated tax liability exceeds ₹10,000 in a year
- Tax Audit: Mandatory if turnover exceeds ₹1 crore (business) or ₹50 lakh (profession)
- Equalisation Levy: 6% on online advertisement payments to foreign digital companies (like Google, Facebook)
- ESOP Taxation: For global employees receiving shares of Indian subsidiaries
How Jain Prachi & Company Can Help
Navigating Indian tax regulations can be complex for overseas business owners. Our firm provides holistic support in:
- Determining optimal tax structures
- Applying DTAA benefits and lower TDS rates
- Ensuring timely filing of all tax returns (ITR, GST, TDS, Transfer Pricing)
- Obtaining PAN, TAN, and GST registrations
- Representing before income tax and GST departments
- Advising on profit repatriation and FEMA-related tax compliance
Why Foreign Investors Choose Jain Prachi & Company
- Extensive experience with international businesses and NRI clients
- Updated knowledge of tax laws and regulatory developments
- Efficient coordination with tax departments and RBI-authorised banks
- Transparent pricing and full-service post-incorporation compliance
Need Expert Tax Support for Your Indian Operations?
Whether you are setting up a new business or scaling an existing one, our tax experts ensure you meet every compliance requirement while maximising tax efficiency.
Book your tax consultation today and start your Indian business journey with clarity and confidence
FAQs – Taxation for Foreign-Owned Businesses in India
Is tax applicable on capital brought in by a foreign shareholder?
No, initial capital contribution is not taxable. However, appropriate FDI reporting must be done to RBI.
Can a foreign company avail DTAA benefits in India?
Yes, provided the foreign entity furnishes a valid Tax Residency Certificate (TRC) and relevant documentation.
What happens if my Indian company fails to deduct TDS on foreign payments?
The company may be liable for interest, penalties, and disallowance of expense under the Income Tax Act.
