Businesses and overseas taxpayers urged to review obligations as new Income-tax framework takes effect
Non-residents conducting business in India are facing renewed attention on tax compliance as the country prepares for the implementation of the Income-tax Act, 2025, which is set to become the primary framework governing income taxation from the 2026 financial year.
Tax experts say the transition has increased the importance of understanding when income earned by foreign individuals and entities becomes taxable in India. Key areas under scrutiny include tax residency status, income sourced from India, business connections, treaty benefits and tax deducted at source (TDS) obligations.
Under Indian tax law, an individual’s residential status is determined largely by the number of days spent in the country during a financial year. Those who do not meet the prescribed residency thresholds are generally classified as non-residents and are taxed only on income that accrues, arises or is received in India.
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For foreign companies and professionals, taxation often depends on whether their activities create a sufficient business presence in India
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Income generated through a business connection, permanent establishment or other taxable nexus may attract Indian tax liabilities, even when the taxpayer is based overseas
Double Taxation Avoidance Agreements (DTAAs) continue to play a significant role in cross-border taxation. These treaties can provide relief from being taxed twice on the same income and may offer reduced tax rates on certain payments such as dividends, royalties and interest. However, taxpayers must satisfy documentation and compliance requirements to claim treaty benefits.
Authorities have also increased monitoring of international transactions and cross-border payments, placing greater emphasis on proper withholding tax compliance. Failure to deduct or deposit applicable TDS can result in penalties, interest and disputes with tax authorities.
As India modernises its tax framework, advisers are encouraging non-resident businesses, investors and professionals to review their tax positions and ensure compliance with evolving regulations before undertaking commercial activities in the country.
