What taxes does a foreign-owned Indian company pay? Complete guide

One of the first questions every foreign founder, NRI investor, or overseas business asks after completing their India incorporation is this — once my Indian company is registered and operational, what taxes does it actually pay?

It is a fair and important question. India has a well-structured tax system, and a foreign-owned Indian private limited company is treated as a domestic Indian company for tax purposes — meaning it pays the same taxes as any other Indian company, with a few additional compliance layers specific to foreign ownership. Understanding these taxes upfront is essential whether you are using company incorporation services India for the first time or planning your company formation in India as part of a broader global structure.

This guide covers every major tax a foreign-owned Indian company pays — corporate tax, GST, TDS, dividend distribution, and more — in plain, practical terms.

First — How Is a Foreign-Owned Indian Company Treated Under Indian Tax Law?

When a foreign investor or NRI completes private limited company registration in India, the company is incorporated under the Companies Act 2013 and is treated as an Indian resident company for income tax purposes — regardless of who owns it.

This means the company pays taxes in India on its worldwide income, just like any domestically owned Indian company. The foreign ownership does not create a special tax status, but it does create additional compliance obligations around profit repatriation, transfer pricing, and FEMA reporting — which we will cover below.

1. Corporate Income Tax

Corporate income tax is the primary direct tax a foreign-owned Indian company pays on its net profits.

Current corporate tax rates for domestic companies:

• Base rate for companies with turnover up to ₹400 crore: 25%

• Base rate for companies with turnover above ₹400 crore: 30%

• New manufacturing companies (incorporated after October 1, 2019, under Section 115BAB): 15%

• Companies opting for the simplified regime under Section 115BAA: 22%

In addition to the base rate, a surcharge applies based on total income, and a Health and Education Cess of 4% is levied on the tax plus surcharge. Most early-stage foreign-owned Indian companies — especially those registered through the online company registration process — fall into the 25% bracket in their initial years.

Advance Tax: Companies must pay advance tax in four instalments — 15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15 of the financial year. Missing these instalments attracts interest under Sections 234B and 234C.

Minimum Alternate Tax (MAT): If a company's normal tax liability is less than 15% of its book profits, MAT under Section 115JB applies at 15% of book profits (plus surcharge and cess). This ensures that companies with large book profits but low taxable income due to deductions still pay a minimum level of tax.

2. Goods and Services Tax (GST)

If your foreign-owned Indian company sells goods or provides services in India — or exports services to overseas clients — GST registration and compliance is mandatory once turnover crosses the threshold.

GST registration thresholds:

• Goods: ₹40 lakh annual turnover (₹20 lakh for special category states)

• Services: ₹20 lakh annual turnover (₹10 lakh for special category states)

• Export of services: Mandatory GST registration regardless of turnover

GST rates vary by product and service category — 0%, 5%, 12%, 18%, or 28%. Most B2B services provided by Indian companies to overseas clients qualify as exports of services and are zero-rated under GST — meaning no GST is charged and the company can claim refund of input tax credit on its expenses.

GST compliance involves:

• Monthly or quarterly GST return filing (GSTR-1, GSTR-3B)

• Annual GST return (GSTR-9)

• Reconciliation of input tax credit with vendor invoices

• Refund claims for export of services (if applicable)

For most technology, consulting, and SaaS companies that register a company remotely in India and serve international clients, zero-rated GST on exports is a significant advantage — you collect no GST from overseas clients but can recover GST paid on your Indian expenses.

3. Tax Deducted at Source (TDS)

TDS is one of the most operationally intensive tax obligations for any Indian company — and foreign-owned companies are no exception.

As an employer and a buyer of services, your Indian company is required to deduct TDS at prescribed rates before making payments to employees, contractors, vendors, landlords, and professional service providers.

Common TDS rates applicable to Indian companies:

• Salary payments to employees: Slab rate (Section 192)

• Payments to contractors: 1% to 2% (Section 194C)

• Professional fees and technical services: 10% (Section 194J)

• Rent payments: 10% (Section 194I)

• Interest payments: 10% (Section 194A)

TDS compliance involves:

• Deducting TDS at the time of payment or credit, whichever is earlier

• Depositing TDS with the government by the 7th of the following month

• Filing quarterly TDS returns (Form 24Q for salary, Form 26Q for non-salary)

• Issuing TDS certificates (Form 16 for employees, Form 16A for others)

Non-compliance with TDS obligations attracts interest at 1% per month for non-deduction and 1.5% per month for late deposit — plus penalties that can equal the TDS amount itself.

4. Dividend Distribution and Withholding Tax

This is where foreign ownership creates a specific, additional tax layer that does not apply to purely domestic companies.

When a foreign-owned Indian company distributes dividends to its foreign shareholders, the dividend is subject to withholding tax in India. Under the current framework:

• Dividends paid to foreign shareholders are taxed at 20% withholding tax (plus surcharge and cess) under Section 115A of the Income Tax Act

• If a Double Taxation Avoidance Agreement (DTAA) exists between India and the shareholder's country of residence, the withholding tax rate may be reduced — typically to 10% to 15% depending on the treaty

India has DTAAs with over 90 countries including the USA, UK, UAE, Singapore, Canada, Australia, Netherlands, and Mauritius. A foreign investor owning shares in an Indian company after completing pvt ltd company registration in India should always check the applicable DTAA rate before planning dividend distributions — the tax saving can be significant.

To claim DTAA benefit, the foreign shareholder must provide:

• Tax Residency Certificate (TRC) from their home country tax authority

• Form 10F filed with Indian tax authorities

• No Permanent Establishment declaration

5. Transfer Pricing Compliance

If your foreign-owned Indian company transacts with its overseas parent, sister companies, or related parties — through service agreements, management fees, royalties, loans, or intercompany sales — transfer pricing regulations under Sections 92 to 92F of the Income Tax Act apply.

Transfer pricing rules require that all intercompany transactions between related parties be conducted at arm's length — meaning at the same price that would be charged between independent parties in comparable transactions.

Transfer pricing compliance involves:

• Maintaining a Transfer Pricing Study / Documentation report

• Filing Form 3CEB (Transfer Pricing Audit Report) certified by a Chartered Accountant — mandatory if international transactions exceed ₹1 crore in a financial year

• Disclosing all related party transactions in the annual tax return

Transfer pricing is one of the most scrutinised areas by the Indian Income Tax Department for foreign-owned companies. Incorrect or unsupported intercompany pricing can lead to large tax adjustments, penalties, and multi-year litigation.

6. Equalization Levy (Digital Tax)

If your foreign-owned Indian company makes payments to overseas digital service providers — for online advertising, cloud platforms, SaaS tools, or digital marketplace services — an Equalization Levy may apply.

• Payments to overseas digital advertising platforms (Google Ads, Meta Ads): 6% Equalization Levy on payments exceeding ₹1 lakh per year to a single provider

• The Indian company deducts and deposits this levy — the overseas provider does not pay it directly

This is an often-overlooked compliance obligation for India-incorporated companies that use overseas digital tools and advertising platforms.

7. Annual Compliance Filings

Beyond paying taxes, a foreign-owned Indian company must complete the following annual filings to remain in good regulatory standing:

• Income Tax Return: Form ITR-6, due by October 31 (or November 30 if transfer pricing applies)

• Tax Audit: Mandatory if turnover exceeds ₹1 crore (₹10 crore for digital transactions) — Form 3CA/3CB and 3CD

• Annual ROC Filings: Form AOC-4 (financial statements) and MGT-7 (annual return) with the Ministry of Corporate Affairs

• FLA Return: Annual Return on Foreign Liabilities and Assets filed with the RBI by July 15 — mandatory for all companies with foreign investment

• GST Annual Return: GSTR-9 by December 31

What Does All This Cost? Practical Perspective

For a foreign investor evaluating pvt ltd company registration cost in India, it helps to understand that the ongoing tax compliance cost is separate from the incorporation cost.

Typical annual compliance costs for a foreign-owned Indian company in its early stage include corporate tax filing, GST returns, TDS filings, ROC annual filings, and FLA return — managed by a CPA firm like Accorp Partners as part of a bundled compliance package. The actual tax paid depends entirely on the company's profitability and turnover.

The compliance framework is structured but manageable when set up correctly from day one — which is why how to open a company in India the right way, with the right advisors, matters enormously.

How Accorp Helps Foreign-Owned Indian Companies Stay Compliant

At Accorp Partners, our India incorporation and ongoing compliance services cover everything a foreign-owned Indian company needs — from the initial online registration of company and bank account setup, to annual corporate tax filing, GST compliance, TDS management, transfer pricing documentation, DTAA benefit claims, FLA return, and ROC filings.

We work with founders across the US, UK, UAE, Singapore, Canada, and Australia who chose to register a business in India and needed a single, reliable CPA-led firm to handle their complete Indian tax and compliance calendar — so they could focus entirely on building their business.

Final Thoughts

A foreign-owned Indian company pays corporate income tax, GST, TDS, dividend withholding tax, and in many cases transfer pricing obligations and equalization levy. None of these are unusual or burdensome — they are the standard framework that applies to every Indian company, with specific treaty and FEMA overlays for foreign ownership.

The key is setting up the compliance structure correctly from the moment you complete your india incorporation — and working with advisors who understand both the Indian regulatory framework and the cross-border dimensions of foreign-owned businesses.

Looking to register a company in India? Visit our India Incorporation Services page for expert guidance.