The residential status of a company for tax purposes is determined under Section 6(3) of the Income Tax Act. According to this section, the determination of a company’s residency status depends on its type and the location from which it is effectively managed. The classification is as follows:
An Indian company is always treated as a resident in India. This remains true regardless of where its control or management is located or where its shareholders reside. Even if the shareholders holding more than 51 percent of the voting power are non-resident individuals or foreign entities, or if the company’s entire business operations are controlled from abroad, it will still be considered resident in India.
In contrast, a foreign company whose turnover or gross receipts in the previous year exceed fifty crore rupees will be deemed resident in India if its place of effective management during the relevant previous year is located within India. This clause emphasizes the importance of the concept of the place of effective management, or POEM.
However, for foreign companies with turnover or gross receipts of fifty crore rupees or less, the rule does not apply. Such companies are automatically treated as non-residents in India from the assessment year 2017–18 onwards. This exemption was clarified through a circular, which specifically excluded such smaller foreign entities from being assessed under the POEM test.
Indian Companies Always Resident
An Indian company is defined under the Companies Act as one that is registered or incorporated in India. According to the Income Tax Act, such companies are always classified as residents in India, regardless of other factors. This status remains unaffected even if the Indian company’s operations are directed from outside the country, or if its shareholders and directors are based abroad. The logic behind this rule is rooted in the principle that a company incorporated under Indian law inherently possesses a domestic identity, making it a resident for tax purposes under all circumstances.
Place of Effective Management for Foreign Companies
The POEM concept is relevant only in the case of foreign companies. According to the Income Tax Act and subsequent clarifications through circulars, a foreign company with a turnover of more than fifty crore rupees will be treated as a resident in India if its POEM is situated within India during the relevant financial year. The POEM is a concept designed to determine the actual location from which the key management and commercial decisions of a company are made. This is a concept of substance over form, meaning that the legal or formal structure of management is less relevant than the actual decision-making process.
Meaning and Importance of POEM
The place of effective management refers to the place where the key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made. A company may have several places of management, especially in the case of multinational operations, but it can have only one POEM at any given point in time. The POEM is to be determined on a year-to-year basis because the location of decision-making and control can shift from one financial year to another based on corporate restructuring or operational changes.
Criteria for Active Business Outside India
The assessment of whether a foreign company is engaged in active business outside India is central to determining its POEM. If a company is actively conducting business operations outside India and satisfies specific conditions, its POEM will be presumed to be outside India as well. This presumption holds only if the majority of board meetings are conducted outside India. The conditions to be satisfied include having not more than fifty percent of total income as passive income, having less than fifty percent of total assets located in India, having fewer than fifty percent of the employees situated or resident in India, and spending less than fifty percent of total payroll expenditure on employees based in India.
Passive income, for this purpose, includes income from transactions involving both purchase and sale with associated enterprises and income derived from royalty, dividends, capital gains, interest, or rent. However, in the case of companies engaged in banking or regulated financial activities, interest income is excluded from passive income calculations.
POEM and Control by Indian Entities
If the facts of a case show that a foreign company’s board of directors is not independently exercising its powers and is instead following directives issued by its Indian holding company or other residents in India, the POEM may be held to be in India. For example, if strategic or commercial decisions are being effectively taken by individuals or entities based in India, rather than by the board or management team located abroad, then the POEM will shift to India. However, this is subject to scrutiny and approval by higher tax authorities, especially in cases where the shift in POEM would change the company’s tax residency.
Two-Stage Process in Other Cases
In cases where a company does not meet the criteria of being engaged in active business outside India, or where the board meetings are held in multiple locations, a detailed two-stage process is followed to determine POEM. The first stage involves identifying the individual or group of individuals who are responsible for key commercial and management decisions. The second stage assesses where these decisions are made. The physical implementation of decisions is less important than the location where such decisions are formulated and approved.
Importance of Board Decisions and Delegation
Where a company’s board of directors retains actual authority and responsibility and exercises it during board meetings, the place of such meetings may be taken as the POEM. However, if the board is merely rubber-stamping decisions taken by senior management, advisors, or Indian promoters, the effective place of management will be where these decisions are truly made. This is especially relevant in global corporate structures where senior executives may operate from central locations that differ from the company’s place of incorporation.
If a board delegates its powers to an executive committee consisting of key managerial personnel, and this committee formulates strategy and makes decisions, the POEM will be where this committee operates. This reflects a focus on actual control rather than legal structure. The location of a company’s head office is also considered a strong indicator of the POEM because key decision-making often occurs there.
Modern Communication and Residency
Technological advancements mean that decision-makers no longer need to be physically present in one location. Therefore, when board or executive meetings are conducted virtually or across multiple geographies, the residency of key decision-makers becomes relevant in determining POEM. A director residing in India and participating in decision-making may shift the POEM to India, depending on the weight of their role in the decision-making process. However, the mere use of modern technology does not automatically change POEM; the substance of where decisions are made still governs the outcome.
Irrelevance of Shareholder Decisions
Decisions made by shareholders on matters reserved for them under corporate law, such as the sale of the company’s assets or restructuring of share capital, do not influence POEM determination. These decisions pertain to the legal and formal structure of the company, not its commercial or managerial control, and thus are excluded from POEM considerations.
Irrelevance of Routine Operations
Routine or day-to-day operational decisions made by junior or mid-level managers do not impact the determination of POEM. Only strategic or high-level commercial and management decisions made by top executives or directors are considered. This distinction reinforces the idea that POEM is a concept of control at the highest level.
Examination Based on Facts and Not Isolated Incidents
POEM is established based on a comprehensive assessment of all relevant facts. Isolated facts such as the existence of a permanent establishment in India, ownership by an Indian company, presence of Indian directors, or local management for Indian operations are not sufficient in themselves to determine POEM. These may serve as indicators, but the final assessment must be grounded in a holistic understanding of where the company’s management and control truly reside.
Role of Tax Authorities in POEM Determination
If an Assessing Officer intends to treat a foreign company as resident in India based on POEM, such a decision requires prior approval from a collegium consisting of three senior tax officials. This process is designed to ensure objectivity, consistency, and fairness in POEM determination. The foreign company in question must also be granted an opportunity to be heard before any final direction is issued.
Application of POEM in Case Studies
Consider an Indian company controlled from abroad with foreign shareholders. Despite control being outside India, the company remains resident because it is incorporated in India. A foreign company from Mauritius with Indian shareholders and active overseas business remains non-resident because its POEM is outside India. Another example is a Japanese company wita h turnover of under fifty crore rupees, which is non-resident by default due to the exemption threshold. These examples highlight the practical application of the statutory rules and the POEM framework.
In cases where foreign subsidiaries of Indian companies conduct active business abroad, have their assets and employees located outside India, and hold board meetings overseas, they are generally considered non-resident. However, if high-salaried key executives reside in India and account for more than fifty percent of payroll expenditure, the foreign company may lose its presumption of being non-resident. In such cases, the POEM may be considered to be in India.
A change in who exercises control can also shift the POEM. If the Indian holding company consistently makes or ratifies key decisions, even if they originate from abroad, then the effective place of management is in India. Similarly, if a foreign company is merely executing decisions pre-approved by its Indian parent for a large proportion of its contracts, this can also bring the POEM to India.
Residency of Foreign Subsidiaries in Multi-Tier Structures
In multi-tiered multinational structures, each company must be assessed independently. The POEM of a holding company does not automatically apply to its subsidiaries. For example, if a Singapore-based holding company has subsidiaries in Hong Kong and Cyprus that are independently managed and hold their board meetings outside India, those subsidiaries will be treated as non-resident even if the POEM of the holding company is in India. This emphasizes the individualized nature of POEM assessment.
Incidence of Tax Based on Residential Status
Tax Liability and Residential Status
Under the Income Tax Act, the incidence of taxation depends primarily on the residential status of the taxpayer. This principle applies not only to individuals and firms but also to companies. The taxability of income is influenced by whether the income is considered Indian income or foreign income and by whether the company is classified as a resident or a non-resident in India for the relevant assessment year.
Classification of Income as Indian or Foreign
To understand the relationship between residential status and tax liability, it is necessary to distinguish between Indian income and foreign income. Indian income is taxable in all cases, regardless of whether the company is resident or non-resident. Foreign income, however, is taxable only in the hands of a resident company. A non-resident company is not liable to pay tax in India on its foreign income.
Indian income refers to any of the following categories. First, income that is received or deemed to be received in India during the previous year and also accrues or arises in India during the same year. Second, income that is received or deemed to be received in India during the previous year, even if it accrues or arises outside India. Third, income that is received outside India during the previous year but accrues or arises or is deemed to accrue or arise in India.
Foreign income is defined more narrowly. It is income that is not received or deemed to be received in India and does not accrue or arise or is not deemed to accrue or arise in India. Only when both these conditions are satisfied is the income considered to be foreign income.
Taxability of Income
A resident company is liable to pay tax in India on its total global income. This includes income received in India and abroad, and income that accrues or arises in India or outside India. In contrast, a non-resident company is only liable to pay income tax that is received in India, deemed to be received in India, accrues or arises in India, or is deemed to accrue or arise in India.
For example, if a resident company earns income from a business operation in the United States, that income will be taxed in India, subject to relief under any applicable double taxation avoidance agreement. If the same income is earned by a non-resident company and is not connected to any business operation or source located in India, it will not be taxed in India.
This fundamental distinction between residents and non-residents forms the basis of determining tax liability. The principle ensures that companies resident in India contribute tax on their worldwide earnings, while non-resident companies are taxed only on income with a nexus to India.
Indian Income Taxable in All Cases
Income that is classified as Indian income is taxable in the hands of both resident and non-resident companies. This includes income that is received in India, deemed to be received in India, or accrues or arises in India. For instance, if a foreign company receives royalties for the use of its intellectual property in India, such income will be considered as accruing in India and will be subject to tax.
The fact that the foreign company may have no physical presence in India or may be managed entirely from abroad does not affect the taxability of this Indian income. The concept of source-based taxation ensures that income sourced in India is taxed in India.
Foreign Income Taxable Only for Residents
In the case of foreign income, the taxability depends on the residential status of the company. A resident company is taxed on its foreign income, whereas a non-resident company is not. This means that if a resident company earns income from operations in Germany, Canada, or any other foreign country, such income will be included in the company’s taxable income in India.
However, if a non-resident company earns income entirely outside India and has no source of income within India, that income will not be taxable in India. This distinction ensures that non-resident entities are only taxed on their India-connected income and not on their global operations.
Application to Indian and Foreign Companies
An Indian company, being always resident in India, is subject to tax on its global income. Even if all its operations are conducted from abroad, and all its income is earned outside India, it remains liable to pay tax in India on that income. The tax authorities apply this rule uniformly, based on the incorporation status of the company under Indian law.
Foreign companies, on the other hand, are subject to residency tests under section 6(3). If a foreign company is found to be resident in India due to the location of its place of effective management, it will be liable to pay tax on its global income. If not, its liability will be restricted to Indian income.
Taxability Under Section 5
Section 5 of the Income Tax Act lays down the framework for determining the scope of total income based on residential status. For resident companies, total income includes all income from whatever source derived, which is received or deemed to be received in India, accrues or arises or is deemed to accrue or arise in India, and income that accrues or arises outside India.
For non-resident companies, total income includes only income received or deemed to be received in India and income that accrues or arises or is deemed to accrue or arise in India. This means that the global operations of a non-resident company are not subject to Indian tax laws unless they create a source of income within India.
Summary of Tax Incidence
In summary, the tax incidence on a company depends on two major factors: the residential status of the company and the place of accrual, receipt, or deemed accrual or receipt of income. Indian income is always taxable in India, irrespective of whether the company is resident or non-resident. Foreign income is taxable only in the hands of a resident company and is exempt in the hands of a non-resident company.
This scheme of taxation ensures that companies with strong economic ties to India contribute to the Indian revenue system, while companies that do not have a significant presence or source of income within India are not taxed unfairly.
Concept of Receipt of Income
Under tax law, income is considered received when it first comes under the control of the recipient. This concept is important in distinguishing between receipt and remittance. Once income is received abroad and later transmitted or remitted to India, the act of remittance does not amount to a second receipt. The income was already received when it first came into the recipient’s control abroad.
This principle is laid down in judicial interpretations, which state that a person cannot receive the same income twice. If a person receives income outside India and later transfers it to India, that transfer is not a receipt for tax purposes. The place and time of the initial receipt determine its character for tax purposes.
Deemed Receipt of Income
In addition to actual receipt, the law recognizes deemed receipt of income. Certain types of income are treated as received in India even though they may not physically come into the hands of the assessee. This includes contributions made by an employer to an employee’s recognized provident fund or pension scheme, transfer balances, and tax deducted at source.
These incomes are treated as received for the purpose of tax even if they are not directly paid to the assessee at the time. The purpose of this rule is to ensure that certain benefits and accruals are taxed appropriately, even if they do not involve a traditional receipt of cash or assets.
Income Received in Kind
Income may be received not only in cash but also in kind. For example, if an employee is provided with residential accommodation by the employer, the value of the accommodation is treated as income. This principle is also applicable in the case of companies where benefits, perquisites, or assets are provided in kind. The law ensures that all forms of economic gain are brought within the scope of taxation, regardless of the mode of receipt.
Receipt versus Accrual
Receipt and accrual are two distinct concepts. An income may be taxable either based on receipt or accrual. Income is said to accrue when the right to receive it becomes vested in the assessee. Receipt, on the other hand, refers to the actual or constructive receipt of income.
A company may earn income that it has not yet received, but if the right to receive it has accrued, such income may still be taxable. Similarly, certain income may be received in advance or arrears, and its taxability will depend on whether it has accrued during the relevant previous year.
Accrual of Income in India
Income that accrues or arises in India is chargeable to tax in all cases. This means that if income is earned from a source located in India, it becomes taxable in India regardless of whether it is received within the country or not. The determination of accrual is based on the origin or source of income.
For instance, if a company renders services to an Indian customer from outside India and earns income for such services, that income may be deemed to accrue in India depending on the nature of services and the terms of the contract. Similarly, royalties, technical fees, and interest earned from Indian sources are deemed to accrue in India.
Residential Status of Foreign Companies
A foreign company is not incorporated in India. However, determining whether it is a resident or non-resident for tax purposes depends on its control and management. According to the Income Tax Act, a foreign company is considered a resident in India if its place of effective management (POEM) during the relevant financial year is in India. POEM refers to the place where key management and commercial decisions that are necessary for the conduct of the business as a whole are, in substance, made. This definition is crucial in preventing tax avoidance by companies trying to shift profits to jurisdictions with lower tax rates. Foreign companies that do not satisfy the POEM criteria remain non-resident and are only taxed on income received or accrued in India or deemed to accrue or arise in India.
Meaning and Significance of POEM
The concept of POEM was introduced to align the Indian taxation framework with global standards and to counteract aggressive tax planning strategies. It ensures that companies having substantial economic activities and management in India are taxed in India, even if they are legally incorporated outside. The Central Board of Direct Taxes (CBDT) has issued guidelines to determine POEM, which consider factors such as the location of the board meetings, the place where senior management operates, and the location of the head office. These guidelines help in a fair and transparent assessment of the residential status of foreign companies.
Tax Incidence Based on Residential Status
The residential status of a company determines the scope of its taxable income in India. A resident company is taxed on its global income, including income earned or received outside India. In contrast, a non-resident company is taxed only on income that is received or deemed to be received in India or accrues or arises or is deemed to accrue or arise in India. This classification impacts the computation of total income, eligibility for deductions, exemptions, and applicability of withholding tax provisions. Thus, understanding residential status is essential for accurate tax compliance and planning.
Income Deemed to Accrue or Arise in India
Section 9 of the Income Tax Act outlines the types of income that are deemed to accrue or arise in India, which is relevant for non-resident companies. These include income from business connections in India, transfer of capital assets situated in India, income from property or assets located in India, dividends paid by Indian companies, interest, royalty, and technical service fees received from Indian entities. Such income is taxable in India even if the transaction or agreement is executed outside India. The concept ensures that India gets its fair share of taxes from activities closely connected to its economy.
Taxability of Branches and Subsidiaries
Foreign companies operating in India through branches or subsidiaries are subject to different tax rules. A branch office is considered an extension of the foreign company and is taxed as a foreign entity. It is treated as a non-resident and taxed only on income earned in India. In contrast, a subsidiary incorporated in India is a separate legal entity and is treated as a resident company. It is subject to tax on its global income. The distinction between branches and subsidiaries is crucial for determining tax obligations, repatriation of profits, and compliance with Indian corporate and tax laws.
Double Taxation Relief
To mitigate the adverse effects of double taxation, India has entered into Double Taxation Avoidance Agreements (DTAs) with various countries. These agreements provide relief to companies that may be taxed on the same income in both India and another country. Relief is provided either through the exemption method, where income is taxed in only one country, or the credit method, where tax paid in one country is credited against the tax liability in the other. DTAAs also help determine the residential status and source of income, prevent tax evasion, and encourage cross-border trade and investment.
Transfer Pricing Regulations
Transfer pricing regulations apply to transactions between associated enterprises, particularly in cross-border scenarios. These rules are designed to ensure that the pricing of such transactions reflects the arm’s length principle. Resident and non-resident companies engaged in international transactions with related parties must maintain documentation and file transfer pricing reports. The objective is to prevent profit shifting and tax base erosion. Failure to comply with transfer pricing regulations can result in significant penalties and tax adjustments. The regulations also apply to specified domestic transactions exceeding a prescribed limit.
Minimum Alternate Tax (MAT)
Resident companies are subject to Minimum Alternate Tax (MAT) if their income tax liability is lower than a specified percentage of their book profits. The purpose of MAT is to bring companies with significant book profits but low or nil tax liability under the tax net. MAT is calculated at a prescribed rate on the book profit computed as per the Companies Act. Foreign companies are generally exempt from MAT unless they have a place of business in India or earn income subject to MAT provisions. MAT credit can be carried forward and set off against future tax liabilities for a specified number of years.
Dividend Distribution Tax and Buyback Tax
Although the Dividend Distribution Tax (DDT) regime has been abolished with effect from April 1, 2020, companies are still required to comply with the new dividend taxation framework. Under the current regime, dividends are taxable in the hands of shareholders. However, companies must withhold tax at the applicable rate before distributing dividends to shareholders. In the case of buybacks by unlisted companies, the buyback tax continues to apply. The company is liable to pay tax on the distributed income arising from the buyback of shares. These provisions impact the tax incidence on corporate earnings distributed to shareholders.
Impact of Amendments and Judicial Pronouncements
The tax treatment of corporate income is subject to amendments in tax laws and interpretations by courts and tribunals. Changes in the definition of residential status, introduction of POEM, amendments to DTAAs, and new tax provisions significantly affect companies’ tax obligations. Judicial pronouncements also play a vital role in clarifying legal ambiguities and setting precedents for future assessments. Companies must keep abreast of such developments to ensure compliance and optimize their tax positions. Legal interpretations often determine the applicability of tax exemptions, computation of taxable income, and the determination of residential status in complex scenarios.
Tax Planning and Corporate Residency
Corporate residency plays a crucial role in tax planning. Companies may attempt to establish their place of effective management in low-tax jurisdictions to reduce their global tax burden. However, Indian tax authorities closely scrutinize such arrangements to ensure that the POEM is not artificially shifted to evade tax. Effective tax planning requires a thorough understanding of residency rules, especially in cases involving cross-border operations and holding structures. Strategic decisions such as the location of board meetings, appointment of directors, and the centralization of decision-making functions can influence the residential status of a company and must be made with due consideration of the tax implications.
Anti-Avoidance Measures
The Indian tax system has incorporated several anti-avoidance measures to prevent tax base erosion and profit shifting. One such provision is the General Anti-Avoidance Rule (GAAR), which empowers tax authorities to deny tax benefits arising from arrangements that lack commercial substance or are designed primarily for tax avoidance. GAAR can be invoked irrespective of the residential status of a company. Additionally, specific anti-avoidance rules such as thin capitalization norms, controlled foreign corporation rules (though not yet implemented in India), and the POEM framework are part of a broader strategy to ensure tax compliance and fairness. These measures reinforce the importance of genuine business substance in determining tax liability.
Compliance Requirements for Resident and Non-Resident Companies
Resident companies are required to comply with the full range of tax provisions applicable under the Income Tax Act. This includes filing annual income tax returns, maintaining proper books of accounts, undergoing statutory audits where applicable, deducting tax at source, and complying with transfer pricing regulations. Non-resident companies, although subject to a narrower scope of taxation, must also fulfill certain obligations such as filing tax returns for income earned in India, applying for a PAN, and complying with tax deduction and withholding provisions. Non-compliance may result in penalties, interest, and litigation. Foreign companies must also assess their exposure to indirect taxes such as GST if they provide services or supply goods in India.
Role of Permanent Establishment
A permanent establishment (PE) refers to a fixed place of business through which the business of a foreign enterprise is wholly or partly carried out in India. The existence of a PE leads to the taxation of business profits attributable to the PE in India. The concept of PE is primarily relevant in the context of DTAAs. A foreign company having a PE in India may be liable to tax in India even if it is not resident. The definition of PE includes branches, offices, factories, construction sites, and the presence of dependent agents. Careful structuring of operations is necessary to manage PE exposure and associated tax liabilities.
Significance of the Place of Effective Management in the Global Context
The concept of POEM is aligned with global tax practices recommended by the OECD. It aims to determine the actual place where key strategic and operational decisions are made, rather than relying solely on legal incorporation. Globally, countries are moving toward substance-over-form principles in tax laws. India’s adoption of POEM signifies its commitment to international tax standards and its resolve to curb tax avoidance. Multinational companies operating in India need to consider POEM in their global tax strategy to ensure that their central management functions are not inadvertently creating tax residency in India.
Impact of Residential Status on Tax Rates and Incentives
The residential status of a company affects the tax rates applicable to it. Indian resident companies are subject to corporate tax at rates prescribed in the Finance Act, including surcharge and cess. They may also be eligible for tax incentives, deductions under various sections, and benefits under sector-specific schemes. Non-resident companies, while generally taxed at higher rates for income earned in India, may benefit from reduced rates or exemptions under DTAAs. Residential status also determines eligibility for benefits under the Income Tax Act, such as deductions for scientific research, exports, and infrastructure development. Thus, residency status has a direct impact on the effective tax liability of companies.
Interplay Between FEMA and the Income Tax Act
The Foreign Exchange Management Act (FEMA) and the Income Tax Act operate independently but intersect in various aspects related to the operations of foreign companies in India. While the Income Tax Act governs taxability based on residency and source of income, FEMA regulates the flow of foreign exchange and defines the criteria for residency in the context of investment, repatriation, and transactions. For instance, FEMA rules determine whether a foreign company can invest in Indian securities or repatriate profits, while the Income Tax Act determines the tax implications of such transactions. Companies must ensure compliance with both laws to avoid regulatory complications.
Withholding Tax Obligations
Resident and non-resident companies paying income to foreign entities are required to deduct tax at source (TDS) on certain types of payments such as interest, royalties, technical fees, and dividends. The rate of TDS depends on the nature of payment, the recipient’s residential status, and applicable provisions of DTAAs. Failure to deduct or deposit TDS can attract interest, penalties, and disallowance of expenses. Companies must obtain tax residency certificates and furnish relevant documentation to claim lower tax rates or exemptions under DTAAs. Withholding tax provisions are a critical element of cross-border transactions and demand careful attention to detail and timing.
Tax Audit and Assessment
Resident companies meeting specified turnover or income thresholds are required to undergo a tax audit under Section 44AB of the Income Tax Act. The audit report must be submitted electronically within the prescribed due date. The audit ensures that the income computation is accurate, deductions are correctly claimed, and tax compliance is ensured. Non-resident companies may also be subject to assessment for income earned in India. The assessment process may involve scrutiny by tax officers, issuance of notices, and hearings. Companies must maintain proper documentation and be prepared to substantiate their claims with evidence. Assessments may also arise from transfer pricing audits, POEM determination, or treaty interpretations.
Dispute Resolution and Advance Rulings
Disputes may arise regarding the determination of residential status, taxability of income, or interpretation of treaty provisions. To reduce litigation, the Income Tax Act provides for the Authority for Advance Rulings (AAR), where companies can seek clarity on the tax implications of proposed transactions. The advance ruling mechanism is particularly useful for non-resident companies and joint ventures. In case of disputes, companies can appeal before the Commissioner of Income Tax (Appeals), Income Tax Appellate Tribunal (ITAT), and higher judicial forums. Alternative mechanisms such as Mutual Agreement Procedure (MAP) under DTAAs and Advance Pricing Agreements (APA) are also available to resolve cross-border tax issues efficiently.
Conclusion
The residential status of a company under the Income Tax Act is a fundamental factor in determining its tax obligations in India. It influences the scope of taxable income, applicability of tax rates, eligibility for exemptions, and compliance requirements. The introduction of the POEM concept has brought India in line with international tax practices and aims to ensure that companies with significant operations and management in India contribute their fair share of taxes. With increasing global scrutiny on tax planning and avoidance, companies must carefully evaluate their operational structure, decision-making processes, and compliance strategies. A robust understanding of residential status and associated tax incidence is essential for sustainable and lawful business operations in India and beyond.