Tax and DTAA for Foreign Companies and NRIs

Tax in India for a foreign company or an NRI is not one tax but several: corporate tax on profits, withholding tax on money paid out of India, and, for individuals, income tax on India-source income even when you live abroad. Which one applies, and under what paperwork, depends on facts people often get wrong: whether your activity in India creates a permanent establishment, whether your country has a tax treaty with India, and whether you count as tax resident here at all.

A double taxation avoidance agreement can lower what India would otherwise withhold on dividends, interest, royalties and fees for technical services, but only with the paperwork in place: a tax residency certificate from your home country and the right declaration filed before the money moves. Skip that and the Indian payer withholds at the higher default rate regardless of what your treaty allows. Transfer pricing adds another layer: a careless intercompany arrangement can create disputes that outlast the deal.

For NRIs, the direction reverses: India taxes only income that arises or is received in India, rent, property sales, NRO interest, dividends, but tenants, banks and buyers often withhold at rates built for the worst case, so filing a return is usually how you recover your own money, not an extra chore. The Income-tax Act, 2025, in force from 1 April 2026, keeps this framework largely intact but renumbers the sections and forms behind it, so treat any section or form number you read with the tax year it applies to in mind.

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India DTAA Master Guide: Treaty Rates, Key Articles, and How to Claim Benefits
Explains how India's tax treaties actually work: the legal basis, the key articles and what changes for you.
Tax Guide for Foreign Companies in India: Corporate Tax, GST & Withholding
One overview of corporate tax, GST and withholding tax obligations for a newly set-up foreign-owned company.
Tax Residency Certificate (TRC)
Defines the certificate you need before any treaty rate applies, and who has to issue it.
Resident Company vs Non-Resident Company: Meaning and Tax Rates in India
Shows how tax residence, not incorporation alone, decides whether India taxes worldwide or only India income.
India DTAA Treaty Guides
The full list of India's tax treaties by country: find yours before reading anything rate-specific.
NRI Taxation in India: Complete Guide
Walks an NRI through what counts as India-source income and when a return is actually required.
Permanent Establishment (PE)
Defines the trigger that turns ordinary Indian activity into a taxable presence for a foreign company.

Before you choose a holding jurisdiction, price intercompany transactions or plan an exit, a pre-entry tax structuring review models the tax cost of each option before you commit to it. When a buyer or an Indian payer is about to withhold tax on your full sale price or payment rather than on your actual tax, applying for a lower withholding certificate before the money moves is how that deduction gets cut. Because most tax withheld from an NRI's rent, property sale or bank interest is only recoverable by filing, filing your NRI tax return is usually how you get that money back.

withholding tax TDS

Most taxable payments from India to a foreign company or NRI, dividends, interest, royalties, fees for technical services, rent, sale proceeds, have tax withheld before they reach you. The rate defaults to the higher domestic one unless the right treaty paperwork is in place beforehand; assuming a treaty rate applies automatically is the most common and costly mistake here.

DTAA treaty relief

A double taxation avoidance agreement can lower the withholding rate India would otherwise charge, or credit Indian tax against tax owed at home, but which treaty applies depends on your tax residence, not where a transaction routes through. Pick your treaty country from the full list rather than assuming rates are the same everywhere; substance matters more than paper residence.

tax residency and TRC

Treaty benefits start with proving where you are actually tax resident, which for an individual depends on days spent in India and for a company can depend on where decisions are really made, not just where it's incorporated. A tax residency certificate from your home tax authority is usually the first document an Indian payer or bank asks for.

permanent establishment

A permanent establishment is what turns ordinary Indian activity into a taxable presence for a foreign company, even without registering an entity here. It can arise from a fixed place of business, a dependent agent, or, under some treaties, staff present long enough on a service engagement; assuming a liaison office or remote staff never triggers it is a mistake.

corporate tax rates

India taxes a resident company on worldwide income and a non-resident company or branch only on India-source income, taxed differently from each other. Effective cost also depends on which regime you elect into, and surcharge and cess sit on top of the headline figure, so comparing India's rate against another country's on one number alone usually misleads.

capital gains tax

Selling Indian shares, property or other assets as a non-resident triggers capital gains tax on the gain, with the rate and classification depending on what you sold and how long you held it. The buyer typically withholds on the full sale price, not the gain, unless a lower withholding certificate was arranged beforehand, a step people leave until too late.

royalty and FTS

Royalties and fees for technical services paid from India carry their own withholding treatment, and treaties often reduce the rate further, but only for payments that genuinely fit those categories rather than ordinary business profit. Some treaties also test whether a service really "makes available" technical knowledge before it counts as FTS at all, worth checking before assuming a rate.

tax return filing

A foreign company with taxable Indian income generally has to file a return even in a loss year, since companies get no basic exemption, and skipping it forfeits loss carry-forward unless a specific filing exemption applies. NRIs file once taxable Indian income crosses the basic exemption limit, and in practice whenever they want a refund or carry-forward.

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tax forms and certificates

Claiming a lower rate or moving money out of India runs on paperwork: a tax residency certificate, a declaration proving treaty eligibility, and certificates the payer or their bank needs before releasing funds. Each has its own trigger and threshold, and treating any one as optional is usually what causes a payment to be withheld at the default rate instead.

advance tax and refunds

Once tax due for the year crosses a set level, it has to be paid in instalments through the year rather than settled in one go when the return is filed, and interest applies to instalments that are missed or underpaid. This catches foreign-owned companies and higher-income NRIs who assume the annual return is the only deadline that matters.

tax notices and assessments

Notices get triggered by mismatches between what was reported and what shows up in the tax department's own record of your income and TDS, or by scrutiny aimed specifically at cross-border transactions. Foreign companies and NRIs sometimes assume Indian tax administration has no reach once they are outside the country; a notice, and the deadline attached to it, says otherwise.

foreign tax credit

Foreign tax credit lets someone who has already paid tax abroad on an income set that off against Indian tax due on the same income, but this relief is built for residents. A non-resident's foreign income generally isn't taxed in India in the first place, so treaty relief and residency status matter more to an NRI than credit relief.

Income-tax Act 2025

India's tax law was rewritten, and the new Act took over from 1 April 2026, keeping most of the old rules' substance but renumbering the sections and forms behind them. The old Act still governs tax years before that date, so the section or form number that applies depends on which year's income is involved, not just what you read.

equalisation and digital tax

India once taxed non-resident digital businesses through a standalone equalisation levy on online advertising and e-commerce, but both versions of that levy have since been abolished. A foreign digital business serving Indian customers today should assess ordinary withholding tax and permanent establishment exposure instead of planning around a levy that no longer applies.

tax incentives and holidays

India has offered tax incentives tied to specific structures, sectors or zones, such as recognised startups, SEZ units and certain manufacturing activity, each with its own conditions and sunset date. Several have already closed to new entrants, qualifying for one does not carry over to another, and incentive planning needs checking against the current rules, not last year's.

treaty rates by country

India's treaty rates are not one number: every DTAA partner country has its own agreed rates and conditions for dividends, interest, royalties and capital gains, so the only useful starting point is the treaty for your own tax residence. Find your country in the full treaty list rather than relying on a rate quoted for a different country's agreement.

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tax on foreign nationals

Foreign employees, seconded staff and even short-term business visitors can become individually liable to Indian tax once presence or activity thresholds are crossed, separate from whatever the employer withholds through payroll. It's easy to treat this as a company compliance problem and overlook that the individual has their own filing obligation, and possibly treaty position, to sort out.

stamp duty

Stamp duty is charged on the document itself, a lease, a sale deed, a share issue or transfer, not on income, and the rules differ by what is stamped. Issues and transfers of shares carry nationally uniform rates; property and lease stamp duty is still set by each state, so the same transaction can cost differently by location.

tax audit

A tax audit is a mandatory review of a business's accounts by a chartered accountant once turnover or receipts cross a set level, separate from the statutory audit required under company law. It applies to a foreign company's Indian branch the same way as a domestic business, and the audit report carries its own filing deadline, distinct from the return's.

NRI tax

India taxes a non-resident only on income that arises here, rent, NRO interest, dividends and gains on Indian property or shares, but tenants, banks and buyers withhold at rates built for the worst case, so a return, on ITR-2 or ITR-3, is usually how that money comes back. Residential status is counted afresh each year from days in India, and it is a different test from the FEMA one that governs your bank accounts.

Frequently Asked Questions

Does a foreign company still need to file an Indian tax return if it made no profit?

Generally yes. Companies get no basic exemption, so taxable Indian income can trigger the filing requirement even in a loss year, and skipping the return forfeits the right to carry losses forward.

Does a tax treaty lower withholding tax automatically, without any paperwork?

No. The Indian payer withholds at the higher domestic rate until you provide a tax residency certificate and the treaty declaration; treaty relief is not automatic.

Can an NRI recover tax withheld on a property sale or NRO interest?

Generally yes, but only by filing an Indian income tax return, since tenants, banks and buyers usually deduct TDS at rates built for the worst case, often on the full amount rather than on the actual taxable gain.

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