Residential Status of Companies in India

1. Indian Companies:
   • An Indian company is always considered resident in India. It doesn’t matter where it is controlled from or where its major shareholders reside.
   • If a company is incorporated in India, it is automatically classified as an Indian company.
2. Foreign Companies:
   • The residential status of a foreign company is determined by its Place of Effective Management (POEM) during a specific financial year.
   • POEM refers to the place where significant management and business decisions necessary for the overall functioning of the company are essentially made.
   • If these key decisions occur in India during a financial year, the foreign company is considered a resident in India for that year.

Examples:

1. XYZ Inc. (Indian Company):
   • XYZ Inc. is incorporated in India. Therefore, it is an Indian resident company.
   • Its global income is taxable in India.
2. ABC Corp. (Foreign Company):
   • ABC Corp. is a foreign company operating in India.
   • During the previous year, its POEM (key management decisions) was in India.
   • Therefore, ABC Corp. is treated as a resident company in India for that year.
   • Its global income is taxable in India.

Frequently Asked Questions (FAQs):

1. Q: How is the residential status of a company determined?
   • A: For Indian companies, it’s straightforward—they are always residents. For foreign companies, it depends on their POEM during the financial year.
2. Q: What is POEM?
   • A: Place of Effective Management refers to where crucial management and business decisions are made. If these happen in India, the company is considered a resident.
3. Q: Can a foreign company be treated as a non-resident?
   • A: Yes, if its POEM is outside India, it is classified as a non-resident.

Remember that understanding the residential status helps companies navigate tax obligations effectively. If you have more questions, feel free to ask! 😊

Want to consult a professional? Contact us: 09463224996.
For more information and related blogs, click here.
Learn more about tax-saving investments on the Income Tax India website.