India is one of the fastest-growing economies in the world, attracting many foreign companies to establish a presence or earn income from within the country. However, with business opportunities comes the responsibility of complying with Indian tax laws. One of the key requirements is Income Tax Return (ITR) filing for foreign companies operating in or earning income from India.
This guide explains the eligibility, tax rates, filing procedure, deadlines, and penalties for foreign company ITR filing in India for the financial year 2024–25 (AY 2025–26).
1. Who is a Foreign Company Under Indian Tax Law?
As per the Income Tax Act, 1961, a foreign company is any company that:
- Is incorporated outside India, and
- Is not a resident of India during the relevant financial year.
A company is considered a resident in India if:
- Its Place of Effective Management (POEM) is in India, or
- It is controlled and managed wholly from India.
If neither of these applies, the company will be treated as a foreign company for taxation purposes.
2. When Does a Foreign Company Need to File ITR in India?
A foreign company must file an ITR in India if it has:
- Earned income accrued or received in India,
- Income deemed to accrue in India (e.g., through business connection, royalty, fees for technical services), or
- A Permanent Establishment (PE) in India.
Even if the foreign company has paid TDS (Tax Deducted at Source) on its Indian income, filing ITR is still mandatory in most cases.
3. Tax Rates Applicable to Foreign Companies in India (AY 2025–26)
Foreign companies are taxed at different rates compared to domestic companies. For FY 2024–25:
| Particulars | Tax Rate |
|---|---|
| Basic Income Tax | 40% |
| Surcharge (if income > ₹1 crore and ≤ ₹10 crore) | 2% |
| Surcharge (if income > ₹10 crore) | 5% |
| Health & Education Cess | 4% (on tax + surcharge) |
Effective tax rate: Typically between 41.6% to 43.68% depending on income level.
4. Key Due Dates for Foreign Company ITR Filing (AY 2025–26)
| Category | Due Date |
|---|---|
| Without Transfer Pricing Report (Form 3CEB) | 31 October 2025 |
| With Transfer Pricing Report (Form 3CEB required) | 30 November 2025 |
Late filing attracts interest under Section 234A/B/C and penalty under Section 234F.
5. Step-by-Step Process for Filing ITR of a Foreign Company
- Determine Residential Status & Taxable Income
- Check if the company qualifies as a foreign company under Indian law.
- Identify income sourced from India.
- Register on the Income Tax Portal
- Create an account on www.incometax.gov.in.
- Collect Required Documents
- PAN of the company (mandatory).
- Tax Residency Certificate (TRC) for availing DTAA benefits.
- Financial statements.
- Audit report (if applicable).
- Choose the Correct ITR Form
- ITR-6: For companies other than those claiming exemption under Section 11.
- ITR-7: If claiming exemptions under specific sections.
- Compute Total Income & Tax Liability
- Apply applicable rates, surcharge, and cess.
- Claim benefits under Double Tax Avoidance Agreement (DTAA) if available.
- Submit the Return Online
- File using digital signature (mandatory for companies).
- Verify & Keep Acknowledgment
- Download ITR-V (acknowledgment) for records.
6. Documents Required for Foreign Company ITR Filing
- PAN (Permanent Account Number)
- Tax Residency Certificate (TRC)
- Financial statements (audited if required)
- Certificate of incorporation
- Details of Indian operations & Permanent Establishment (if any)
- Proof of TDS deducted in India (Form 26AS)
- Details of international transactions (if applicable)
7. Benefits of Filing ITR for Foreign Companies
- Ensures compliance with Indian tax laws.
- Enables claiming refund of excess TDS.
- Helps in availing DTAA benefits.
- Avoids penalties, interest, and legal issues.
- Builds credibility for future business operations in India.
8. Penalties for Non-Compliance
Failure to file ITR on time can lead to:
- Late filing fees (Section 234F): Up to ₹5,000.
- Interest (Sections 234A/B/C): For delay in filing or paying taxes.
- Prosecution: In cases of willful evasion, imprisonment may apply.
Conclusion
For foreign companies earning income in India, ITR filing is not just a compliance formality but a necessity. With high tax rates, strict deadlines, and penalties for delays, timely filing ensures smooth business operations.
Foreign companies should also explore DTAA benefits to avoid double taxation and reduce tax liability. Consulting a professional tax advisor or service provider is highly recommended for accurate compliance.
Frequently Asked Questions (FAQs)
1. Is ITR filing mandatory for foreign companies in India?
Yes, if a foreign company earns any income from India, filing ITR is mandatory.
2. Can a foreign company claim DTAA benefits?
Yes. By providing a valid Tax Residency Certificate (TRC), foreign companies can claim relief under the DTAA.
3. Which ITR form should a foreign company use?
Generally, ITR-6 is applicable unless exempted under specific provisions.
4. What happens if a foreign company does not file ITR?
Penalties, interest, and even prosecution may apply for non-compliance.
5. Can foreign companies get a refund for excess TDS deducted?
Yes. Filing ITR is essential to claim such refunds.