Stepping into India as a foreign company? Whether you’ve already landed or are still Googling “How to do business in India without losing my mind”, one thing is clear—you’re entering one of the world’s most dynamic markets.
India isn’t just another pin on the map. It’s a rising powerhouse with 1.4 billion potential customers, a startup-friendly vibe, and a tax system that… well, let’s just say it likes to keep things interesting.
If the tax jargon is making your head spin faster than your expansion plans, breathe. You’re not alone, and you’re definitely in the right place.
This guide gives you 10 smart, straight-talking tax insights every foreign business needs to know before trying to charm the Indian market. Let’s decode the chaos—one tax at a time.
1.Understand Your Business Structure: Liason vs Subsidiary vs Permanent Establishment (PE)
Before moving towards anything complex, the most significant factor is the legal structure of a business, which defines its tax exposure when operating in India through a foreign entity. Let’s understand how the structure affects the taxability for a foreign company setting up in India in a quick way-
- Liaison Office- It cannot earn income; hence, it is not taxable, as a liaison office only acts as a communication channel between a foreign parent company and entities setting up in India.
- Branch Office/Project Office- It is taxable at the corporate tax rate applicable to foreign companies, and both BO and PO are taxed as foreign entities (non-resident)
A Branch Office is a representative setup of a foreign company in India that wants to conduct business in India without forming a separate Indian company. On the other hand, A Project Office is a temporary setup formed by a foreign company to execute a specific project in India.
| Particulars | FY 2024-25 Rate |
| Income of a Foreign Company | 40% |
| Surcharge (if income > ₹1 crore) | 2% |
| Surcharge (if income > ₹10 crore) | 5% |
| Health & Education Cess | 4% |
- Wholly Owned Subsidiary(WOS)-
A wholly owned subsidiary is a separate legal entity in which a foreign parent company owns 100% of its shares, thereby gaining full control over the subsidiary’s operations and management. This structure is common among sectors that allow 100% foreign direct investment (FDI)
It is considered a separate Indian company (a Private limited company, as per the Companies Act, 2013) and is taxed accordingly.
Taxed as an Indian company:
- Income Tax: 25% (if turnover < ₹400 crore) or 30%
- Surcharge & Cess apply
- Permanent Establishment(PE)-
A Permanent Establishment is a tax concept under Indian law and is mentioned in most Double Taxation Avoidance Agreements (DTAAs). It refers to a fixed place of business through which a foreign company carries out business activity in India and becomes liable to pay tax on the income generated here.
If your foreign entity has a PE in India, global income attributable to Indian operations becomes taxable here.
Note: If a Double Taxation Avoidance Agreement (DTAA) exists with the country of residence, the lower of the DTAA or Income Tax Act rate applies.
2. Understanding Withholding Tax (TDS) Obligations
In India, there are compliance filings called Form 15CA and Form 15CB, which must be filed by individuals in India who make any foreign remittance payment to another country.
In this form, the individual discloses all necessary information related to foreign remittances. One of the pieces of information included here is TDS, as foreign companies receiving payments from Indian entities are subject to paying tax. The remitter making the payment deducts this tax at source.
Foreign companies that are receiving payments from Indian entities are often subject to Tax Deducted at Source (TDS). Common cases include:
- Fees from technical services
- Royalty
- Interest in loans
- Dividend income
Note: Indian payers are required to deduct tax at source (TDS) at the prescribed rates and deposit it with the government. Forms 15CA & 15CB are required for most foreign remittances.
3. Clear your Transfer Pricing Regulations
It is a key regulatory requirement for multinational corporations (MNCs) operating in India, which ensures fair taxation and avoids Base Erosion and Profit Shifting (BEPS)
BEPS: It refers to tax planning strategies employed by multinational corporations to exploit gaps and inconsistencies in tax rules across various countries, thereby reducing their overall tax burden.
If you transact with your Indian subsidiary or relate directly, India’s transfer pricing rule will apply.
Let’s Understand: What is Transfer Pricing?
Transfer pricing refers to the pricing of goods, services, or intellectual property transferred between related entities or associated enterprises of the same multinational group, especially across international borders.
India has a comprehensive transfer pricing regime, as outlined in sections 92 to 92F of the Income Tax Act, 1961, applicable to both domestic and international transactions that exceed a specified threshold in terms of deal value.
What should you keep in mind regarding TP regulations?
You should ensure the fulfillment of the following points with regard to the accomplishment of the transfer pricing regulations:
- The company must maintain detailed documentation of pricing methodology, documentation, agreements, and comparables
- Maintaining documentation of Arm’s Length Pricing
- There is a mandatory filing, Form 3CEB, which must be certified by an auditor
- Pricing must match what would be charged in an unrelated party transaction
- Methods allowed: CUP, TNMN, RPN, Cost plus, profit split, etc.
- Engage a qualified chartered accountant (CA) to prepare Transfer Pricing Study Reports in advance.
4. Know your Goods and Services Tax(GST) Applicability
Foreign companies providing online services or importing goods and services into India may be subject to GST laws. Let’s understand who needs to register and who doesn’t-
| Type of Foreign Company | GST Registration Needed? | Remarks |
| Exporting goods to India | Not needed because the Indian importer pays IGST | |
| OIDAR Services (B2C) | Yes | Must register as non-resident |
| Indian Branch/Subsidiary | Yes | Normal GST registration |
| Pure B2B digital services | (RCM applies) | Indian customer pays GST |
Non-Resident Taxable Person Must:
- Register at least 5 days before starting their business
- File GSTR-5 (Monthly return)
- Pay GST in advance of the estimated liability
- GST audit, if applicable
5. Know your Double Taxation Avoidance Agreement (DTAA) Treaty
Of course, you chose India after recognizing several benefits, and you’re absolutely right. One of the key advantages is that India has signed Double Taxation Avoidance Agreements (DTAA) with over 90 countries.
DTAAs help foreign companies avoid being taxed twice, once in India and again in their home country.
You just need to understand the DTAA treaty between your country and India and its implications, so that you can also maximize your tax savings and minimize your tax liability.
To avail DTAA benefits, you have to:
- Furnish a Tax Residency Certificate (TRC) from your home country
- Maintain relevant documentation like Form 10 F, valid visa, and passport copies, DTAA claim letter/covering letter
6. Filing of Income Tax Returns
Foreign companies are required to file ITRs annually if they have a taxable presence or earn income in India.
As per the Income Tax Act, the due dates for filing returns of income/loss for foreign companies are 31st October.
In the case of an assessee having an international transaction or specified domestic transaction(s) who is required to furnish a report in Form No. 3CEB, the due date is November 30.
The forms they require to file are ITR-6 and ITR-7.
7. Advance Rulings for Tax Clarity
India offers foreign companies a risk-free environment in which to conduct business, navigate complex tax structures, resolve disputes, and prevent misappropriations. Specialized departments are established to support foreign businesses. They can contact the Authority for Advance Rulings (AAR) to get full clarity on the taxability of their specific transactions. This helps avoid future litigation and enables accurate tax planning.
An Advance Ruling is a written decision provided by the tax authority on the tax implications of a proposed or ongoing transaction.
How to avail this benefit-
- Submit an application to the Board for Advance Rulings (since AAR replaced this under the 2021 amendment)
- Pay the prescribed fee as per the Government of India
- Provide full transaction details and supporting documents
Note: This ruling is transaction-specific, and you can not use it as a general interpretation for all cases. It is only useful in areas like royalty payments, transfer pricing, TDS rates, DTAA benefits, etc.
If you require a general interpretation of other cases, you can seek assistance from professionals who possess in-depth knowledge of all key regulatory requirements related to taxation in India.
8. Repatriation of Profits: FEMA Compliance
Whenever a foreign company in India earns profits through its branch office or project office in India and now wishes to transfer (repatriate) those profits back to its parent company abroad, it must comply with India’s Foreign Exchange Management Act (FEMA) regulations.
The profit your organization earns (here in India as a branch or project office) can be easily transferred to your country if you follow the necessary tax implications and filings-
- Transferring profits back to the parent company involves filing Form15CA/CB, has to be submit online on the e-filing portal of the IT Departmentand submitt the board and shareholder resolutions (in case of dividends)
- You need to adhere to FEMA regulations, as banks also require full documentation before allowing outward remittances.
- If you don’t comply with FEMA or tax laws, it can lead to penalties, delays in fund transfers, and scrutiny from the RBI or the Income Tax Department. However, proper maintenance and submission of documentation ensure a smooth and legal return of profits to the parent company.
9. Recent Changes and Budget 2025 Highlights
changes, you can refer to the detailed Budget Report of 2025. The key highlights are as follows
- Extended the scope of significant economic presence (SEP) to tax digital entities without physical presence
- Certain items are exempt from custom duty in 2025 budget
- Introduction of Faceless Assessments for better transparency
Revision in TDS rates on certain cross-border services
10. Engage Local Experts
Indian tax laws are subject to frequent changes, and compliance failures can lead to penalties and reputational damage. It is recommended that foreign companies:
- Hire local Chartered Accountants (CAs) and legal advisors
- Use professional payroll and compliance services
- Periodically review their India operations for compliance with their CA/CPA
Final Thoughts
Doing business in India presents immense growth opportunities, but it requires a deep understanding of the country’s tax framework. Whether it’s handling GST, transfer pricing, or repatriation, the right strategy and local support can make all the difference.
Navigating through India’s tax structure doesn’t have to be daunting with proactive planning and expert guidance, foreign companies can stay compliant and focused on growth.
Why Mercurius is Your Trusted Partner in India
With a deep understanding of Indian tax laws, international tax treaties, and cross-border regulations, Mercurius offers tailored solutions for foreign businesses entering or expanding in India. Our team of experts ensures:
- Seamless entity setup and structure planning
- Accurate tax filings and reporting
- End-to-end GST, TDS, and transfer pricing compliance
- DTAA documentation and repatriation support
- Proactive regulatory updates and strategic tax planning
Whether you’re just entering the Indian market or scaling operations, Mercurius is the partner you can rely on for hassle-free compliance and confident growth. At Mercurius, we assist various clients with their tax planning prior to the start of a specific financial year. If you have any questions or would like to learn more about your corporate tax filing or customs requirements for your business, please Contact Us.