Overview and Definition of Foreign Company
Under Section 2(23A) of the Income Tax Act, 1961, a foreign company is defined as any company that is not a domestic company. This includes bodies corporate incorporated under the laws of a country outside India, as well as any institution, association, or body (whether Indian or non-Indian, incorporated or not) declared to be a company by a general or special order of the Board.
For the Assessment Year (AY) 2026-27, foreign companies must comply with specific income tax return filing requirements, submit mandatory audit reports, and adhere to the prescribed tax rates and surcharge structures.
Applicable Income Tax Returns (ITR)
Foreign companies must file their income tax returns using either ITR-6 or ITR-7, depending on their activities and exemptions.
ITR-6 is applicable for companies other than those claiming tax exemptions under Section 11 of the Income Tax Act, 1961. This includes Indian companies and bodies corporate incorporated outside India.
ITR-7 is applicable for persons, including companies, who are required to furnish returns under specific sections. These include Section 139(4A) for income derived from property held under trust for charitable or religious purposes, Section 139(4B) for political parties, Section 139(4C) for entities like research associations or news agencies, and Section 139(4D) for universities, colleges, or other institutions.
Key Forms and Audit Reports
Foreign companies must track their tax credits and transactions using Form 26AS and the Annual Information Statement (AIS). Form 26AS provides details of Tax Deducted or Collected at Source (TDS/TCS). The AIS provides comprehensive details including TDS/TCS, Statement of Financial Transactions (SFT) information, tax payments, demands, refunds, and other information like pending or completed proceedings and GST details.
Form 16A is a quarterly certificate of TDS issued by the deductor to the deductee, capturing the TDS amount, nature of payments, and deposits made with the Income Tax Department.
Form 3CA-3CD is required for taxpayers undergoing a mandatory audit under any other law who must get their accounts audited under Section 44AB. It must be furnished one month before the due date for filing the return of income under Section 139(1).
Form 3CE must be submitted by non-resident taxpayers or foreign companies doing business in India who are required to obtain an accountant's report under Section 44DA for receiving specified royalty or fees for technical services from the Government of India or an Indian concern. This must also be furnished one month before the Section 139(1) return filing due date.
Form 29B is required for companies liable to obtain an accountant's report under Section 115JB, certifying that book profits are computed in accordance with the law. It must be furnished one month before the Section 139(1) return filing due date.
Tax Rates, Surcharges, and Minimum Alternate Tax (MAT)
For AY 2026-27, the standard income tax rate for a foreign company on "any other income" is 35%.
A higher tax rate of 50% applies to royalties received from the Government or an Indian concern under approved agreements made after March 31, 1961, but before April 1, 1976, or fees for technical services under approved agreements made after February 29, 1964, but before April 1, 1976.
Surcharges are levied on the calculated income tax based on taxable income thresholds. A 2% surcharge applies to taxable income above Rs. 1 crore up to Rs. 10 crore, and a 5% surcharge applies to taxable income exceeding Rs. 10 crore. Marginal relief is available to ensure the surcharge does not exceed the income earned over the Rs. 1 crore or Rs. 10 crore thresholds.
Additionally, a Health and Education cess of 4% is payable on the total amount of income tax plus any applicable surcharge.
Foreign companies not falling under Explanation 4 of Section 115JB are liable to pay Minimum Alternate Tax (MAT) at 15% of book profits (plus applicable surcharge and cess) if their normal tax liability is less than 15% of their book profits.
Available Tax Deductions under Chapter VI-A
Foreign companies can claim various tax deductions under Chapter VI-A of the Income Tax Act, 1961, subject to specific conditions.
Section 80G allows deductions for donations to prescribed funds and charitable institutions, categorized into 100% or 50% deductions, either with or without qualifying limits. However, no deduction is allowed for cash donations exceeding Rs. 2,000.
Section 80GGA provides deductions for donations made for scientific research or rural development to approved associations, universities, or funds. Cash donations exceeding Rs. 2,000 are not eligible, and no deduction is allowed if the company's gross total income includes business or professional profits.
Section 80GGC allows deductions for contributions made to political parties or electoral trusts, provided the payment is made through any mode other than cash.
Section 80IAB offers deductions for profits and gains from developing a Special Economic Zone (SEZ), provided the development did not begin on or after April 1, 2017.
Section 80IE provides a 100% profit deduction for 10 assessment years for certain undertakings set up in North-Eastern states.
Section 80JJAA allows a deduction of 30% of additional employee costs for three assessment years for taxpayers subject to Section 44AB audits, subject to conditions.
Section 80LA provides a 100% deduction of specified income for 5 consecutive assessment years for Offshore Banking Units and International Financial Services Centres.