Tax audit applicability for foreign company have poem in india

The applicability of a tax audit for a foreign company that is considered a resident in India due to its Place of Effective Management (POEM) is determined by the same thresholds as any other business entity under Section 44AB of the Income Tax Act, 1961.

Applicability of Tax Audit (Section 44AB)

When a foreign company has its POEM in India, it is treated as a tax resident of India for that year. Consequently, its income is subject to Indian tax laws, and it must comply with relevant tax filings and audit requirements.

A tax audit under Section 44AB is mandatory if the foreign company’s total sales, turnover, or gross receipts in business exceed the prescribed thresholds during the previous year:

• Standard Threshold: If turnover or gross receipts exceed ₹1 crore.

• Extended Threshold (Digital Transactions): If the aggregate of all receipts in cash does not exceed 5% of total receipts AND the aggregate of all payments in cash does not exceed 5% of total payments, the threshold is increased to ₹10 crore.

Key Considerations

1. Status as "Resident": Once a foreign company is deemed a resident due to its POEM being in India, it is treated similarly to a domestic company for the purposes of tax residency. The compliance requirements, including tax audits, apply to it in the same manner as they would to any other resident business entity.

2. No Blanket Exemption: There is no blanket exemption from a tax audit simply because a company is a foreign entity. If the financial thresholds mentioned above are crossed, the company must undergo a tax audit conducted by a Chartered Accountant.

3. Audit Report: The audit report must be filed in the appropriate form (typically Form 3CA/3CB and 3CD) on the Income Tax e-filing portal.

4. Presumptive Taxation: If the company opts for presumptive taxation schemes (where applicable), different conditions for tax audit may apply under the respective sections (e.g., Section 44AD or 44AE), though these are generally less common for large foreign corporations.

Summary

A foreign company with its POEM in India is a tax resident of India. Therefore, it is mandatorily required to undergo a tax audit under Section 44AB if its business turnover or gross receipts exceed ₹1 crore (or ₹10 crore if digital transaction criteria are met).