A foreign entity engages some persons for doing their back office work individually impact on IT

Tax queries 67 views 1 replies
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8 Points Joined May 2017

A foreign entity engages individually to do back office jobs in accounts and In finance functions.  It's impact on income tax and GST

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On 23 February 2025 at 08:35 Report
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Master in Accounts & high court Advocate
8991 Points Joined December 2011

Income Tax Implications 1. *Permanent Establishment (PE)*: If the foreign entity has a fixed place of business in India (e.g., an office) or has employees/agents in India who regularly exercise authority to conclude contracts, it may be considered to have a PE in India.

 2. *Business Income*: If a PE is established, the foreign entity's business income from Indian operations will be taxable in India.

3. *Withholding Tax (WHT)*: If the foreign entity doesn't have a PE in India, the Indian client may need to withhold tax on payments made to the foreign entity, under Section 195 of the Income-tax Act, 1961.

4. *Tax Residency*: If the foreign entity spends more than 182 days in India in a financial year, it may be considered a tax resident in India.

GST Implications 1. *Supply of Services*: The foreign entity's back-office services to Indian clients would be considered an export of services, which is zero-rated under GST.

2. *Reverse Charge Mechanism (RCM)*: If the foreign entity doesn't have a GST registration in India, the Indian client may need to pay GST under RCM, as per Section 5(3) of the IGST Act, 2017.

3. *GST Registration*: If the foreign entity's annual turnover from Indian operations exceeds ₹40 lakhs (₹20 lakhs for special category states), it may need to obtain a GST registration in India.

Other Considerations 1. *Transfer Pricing*: The foreign entity may need to comply with Indian transfer pricing regulations, if it has transactions with its Indian subsidiaries or associated enterprises.

2. *FEMA Compliance*: The foreign entity may need to comply with Foreign Exchange Management Act (FEMA) regulations, related to foreign exchange transactions and investments in India. It's essential for the foreign entity to consult with an Indian tax consultant or chartered accountant to ensure compliance with Indian tax laws and regulations.

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On 23 February 2025 at 13:16


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