Overview on Payments to Project Offices of Foreign Companies in India

Payments to Project Office (PO) of a Foreign Company in India

Treatment of Payments to Project Offices of Foreign Companies in India under TDS & Form 15CA/15CB compliance:

Payments made to a Project Office of a foreign company in India attract TDS u/s 195 of the Income Tax Act, 1961, and require compliance with Form 15CA/15CB filing requirements. A Project Office is typically regarded as a permanent establishment of the foreign company in India. Consequently, income attributable to the activities carried out in India through such an office is taxable in India as business income.

TDS Obligations

• TDS Applicability : Any person (resident or non-resident) making a payment to the Project Office of a foreign company must deduct TDS if the payment is chargeable to tax in India. The Project Office is treated as a non-resident entity for tax purposes (except in specific cases governed by the POEM rules).
• Taxable Income : The PO’s income from operations in India is taxable at rates applicable to foreign companies, 40% (plus applicable surcharge and cess) on net taxable income, or at a beneficial DTAA rate, whichever is lower.
• Rate of TDS : Without DTAA benefit: Standard TDS rates under the Income Tax Act apply (e.g., 20% for royalty/FTS, 40% on business profits if not covered under specific provisions).
• With DTAA benefit: The lower of the Indian domestic rate or the DTAA rate applies, subject to submission of Tax Residency Certificate (TRC) from the foreign tax authority, and Form 10F duly completed by the foreign company.
• Lower/Nil TDS Certificate (Optional) : The PO may apply to the Assessing Officer (AO) under Section 197 for a certificate of lower or nil deduction of tax. This is often recommended because the final tax liability is computed on net income, while TDS is typically applied on a gross payment basis.

Comparison: Project Office vs Liaison Office vs Branch Office of Foreign Company

Liaison Office: Cannot earn income in India; only acts as a communication channel. Any income-generating activity would violate RBI approval and attract tax under Section 9 and FEMA penalties.

Project Office:  Treated as a Permanent Establishment (PE) of the foreign company. All profits attributable to Indian projects are taxable in India.

Branch Office: Also treated as PE; all income attributable to Indian business operations is taxable. Full TDS and Form 15CA/CB compliance required for payments/remittances.

An Indian company makes a payment of technical fees to a project office of a foreign company operating in India.

• A project office of a foreign company in India is not a separate legal entity; it is merely an extension of the foreign parent company.

• For income tax purposes, a project office is generally treated as a non-resident, unless it constitutes a Permanent Establishment (PE) in India under a Double Taxation Avoidance Agreement .

• Therefore, payments such as technical fees, royalty, or consultancy charges made to a PO are deemed to accrue or arise in India under Section 9(1)(vii).

• These are taxable as Fees for Technical Services : typically at 20% plus applicable surcharge and cess, subject to relief under the DTAA (if applicable).

• TDS under Section 195 applies, as payment is made to a non-resident entity (the foreign company via its project office).

Form 15CA / Form 15CB Compliance

1. Form 15CA (Declaration by Remitter)

• Filed online by the remitter before making the payment through an authorised dealer/bank. It provides details such as nature of payment, amount, TDS deducted, and purpose code. Mandatory for most foreign remittances unless specifically exempt under Rule 37BB, e.g.: Certain import payments, Specified personal remittances by individuals

2. Form 15CB (Certificate by Chartered Accountant)

• Income Tax Form 15CB Issued by a practicing CA Certifying the nature of remittance, taxability under Indian law, and TDS compliance. Required when The remittance is taxable in India, and The aggregate of such remittances exceeds ₹5 lakh in a financial year, and  No lower/nil TDS certificate has been obtained from the AO. Flow of Compliance, as mentioned below:

Form 15CA / 15CB Compliance : Summary Table payment of technical fees to a project office of a foreign company operating in India.

Even if the payment is made to an Indian bank account held by the project office, the beneficial owner of the income is the foreign company. Hence, such remittance is considered a foreign remittance for Rule 37BB compliance. Accordingly, Form 15CA and 15CB must be filed before making the payment.