Income tax in India will be charged based on the residential status of your company. Residential status of a company is based on the place of company’s control and management of its affairs.
If your company is register in India then it will be treated as a resident under the provisions of IT act. An Indian company will be always treated as resident.
If it’s a foreign company then we need to find out where the control and management of the company is based at. Following possibilities may arise to determine the residential status of a company;
- If the control and management of the foreign company is in India then the foreign company will be treated as a resident under IT act.
- If the control and management of such foreign company is wholly outside India then the company will be treated as non resident as per IT act.
- If the control and management is partly in India and partly outside India then such foreign company will be considered as non resident.
If a company is resident in some other country it does not mean that that company can not be resident in India. A company can be resident of more than one country.
How control and management is derived for finding residential status
Control and management has not been defined under income tax act. Following things are considered to find out whether control and management is in India or not.
- Place of the company’s board of directors meetings.
- Where the head and brain directing the affairs and policy of the company sits.
- Where the finance and disposal of profits and vital things concerning the management of a company sits.
Control and management will not be based on where the day to day business of the company is carried on. If the foreign company is managed partially from outside Indian then it is enough to prove that the company is non resident.