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Thursday, 28 June 2018

Income Taxx Liability for Foreign Firms [CBDT notification dt. 22-06-2018]



With a view to bringing more clarity in the newly launched concept of Place of Effective Management (POEM), the Central Government has, on Wednesday, notified the rules for computation of income tax for foreign companies having the place of effective management in India. 

The notification issued by the Central Board of Direct Taxes (CBDT), the apex direct taxes body provides for the calculation of written-down value, and computation of brought-forward loss and unabsorbed depreciation. according to the new rules, a company would continue to be treated as a foreign company even after it becomes resident in India. 

The Finance Act, 2015 has amended Section 6(3) of the Income Tax Act. with effect from 1st April 2015, a foreign company would be considered to be a tax resident of India if its POEM was found to be situated in India (POEM Test). However, because the draft guidelines were released a mere three months before the end of 2015-16, it left taxpayers with very little time to set their affairs in order. The Finance Act, 2016, therefore, deferred its entry into force by a year to April 1, 2016. however, as per section 115JH of the IT Act, the special provisions applicable to the foreign company said to be resident in India, required the government to provide the condition for computation of total income of such foreign company considered as resident in accordance with POEM.