India is a document-led tax system. Most of what a foreign group finds difficult is not the rate but the sequence: a payment out of India needs its certification before it moves, and a lower withholding rate needs its certificate before the payment, not after.
Who this guide is for
- Foreign companies opening an Indian subsidiary, liaison office or project office.
- Groups already receiving payments from India that arrive net of withholding.
- Canadian and US companies with Indian development, support or manufacturing operations.
The entry routes, and what each one may do
A foreign company can operate in India through a subsidiary company, or through one of several forms of office of the foreign company itself. The office forms are narrower in what they are permitted to do: a liaison presence is generally limited to representation and cannot earn income, while a project or branch presence can carry on defined activity and is taxed accordingly.
The practical consequence is that the activity you intend decides the vehicle, and choosing a vehicle that cannot do what you need is a slow problem to fix. A subsidiary is the general-purpose answer where there is real trading or service delivery, and it brings inbound investment reporting with it — the receipt of share capital from abroad is itself a reportable event with its own filing.
Permanent establishment, and the service delivery trap
The treaty test applies here as elsewhere, but two patterns catch foreign groups repeatedly. The first is service delivery: personnel who spend enough time in India delivering services to a customer can create a taxable presence for the foreign company even with no office, because a service permanent establishment concept appears in several of India's treaties.
The second is the subsidiary that is effectively an extension of the parent. A subsidiary that provides services only to its parent, on terms the parent sets, with no independent business of its own, invites the argument that the parent has a presence in India through it. Documented intercompany agreements and a defensible pricing basis are the answer, and they have to exist before the argument is made.
Withholding on payments out of India
India operates a comprehensive withholding regime, and payments to non-residents sit inside it. The rate depends on the character of the payment — services, royalty, interest, dividend, fees for technical services — and on whether treaty relief applies. Treaty relief is claimable but it is conditional on documentation, including a residency certificate from the recipient's own tax authority and a treaty information declaration.
Where the statutory withholding is higher than the eventual liability, the recipient or the payer can apply for a certificate authorising a lower or nil deduction, in advance. This is materially better than withholding at the full rate and reclaiming by return, because refunds are slow and the cash sits in India in the meantime.
What a foreign recipient should have in the Indian payer's hands before an invoice is paid:
- A current tax residency certificate from its own tax authority.
- The Indian treaty information declaration, completed and signed.
- A permanent account number, where one is required for the payment to attract the treaty rate rather than a default rate.
- Where applicable, the certificate authorising a lower or nil deduction.
Remittance certification: the step nobody expects
Money leaving India generally requires a declaration by the remitter and, in most cases, an accountant's certificate confirming the nature of the payment and that the correct tax has been withheld. Banks will not process the remittance without it. This is why a payment that was agreed in a contract can still sit in India for weeks: the paperwork is a precondition, not a formality.
Building this into the payment cycle — the certificate obtained as part of the invoicing routine rather than as an emergency at month end — is one of the highest-value operational changes a group with Indian outflows can make. Our pages on the remitter declaration and the accountant's certificate set out what each requires.
Transfer pricing and the accountant's report
India has a developed transfer pricing regime with its own documentation requirements and an accountant's report covering international transactions with associated enterprises, filed alongside the return. There is also a safe harbour option for certain categories of transaction, which trades a possibly higher margin for certainty and a lighter defence burden.
For a group with an Indian captive service centre, the transfer pricing file is the single most important tax document the Indian entity produces, because the margin it supports is the tax base. Our page on Indian transfer pricing documentation covers what has to be in it.
An Indian entry, in order
The reporting on inbound capital and the withholding setup both come earlier than people expect.
- Match the activity to a vehicleRepresentation, project delivery, trading or service export each point at a different entry route, and the permitted activities differ. Choose on what you will actually do.
- Incorporate and report the inbound investmentCompany formation, then the reporting of foreign share capital received, which is a filing with its own deadline rather than a bank formality.
- Obtain the tax registrationsPermanent account number, tax deduction account number for withholding, and goods and services tax registration where supplies require it.
- Set the withholding architectureDecide which outbound payments will attract withholding, gather the residency certificates and declarations, and apply for a lower deduction certificate where the default rate overstates the liability.
- Paper the intercompany relationshipsService agreements, a pricing basis and a benchmarking file, before invoicing starts. This is also what protects the parent against a presence argument.
- Build the annual calendarCorporate return, transfer pricing report, withholding returns on their own cycle, and the remittance certification routine for every payment abroad.
What to gather
What an Indian entry or review needs:
- Group structure chart with ownership percentages and residence.
- Description of the Indian activity and who will perform it, in India and abroad.
- Draft intercompany service or licence agreements.
- Expected Indian revenue, cost base and headcount for two years.
- Tax residency certificates for every group entity that will receive money from India.
- Details of any payments already made from India, and the rate withheld.
- Any Indian registrations, notices or assessments already in existence.
- The parent's transfer pricing policy, if the group already has one.
Where this goes wrong
Choosing a vehicle that cannot do the work
A representation-only presence that starts invoicing, or a project presence used for general trading, creates a problem that is resolved by restructuring rather than by an amended return.
Leaving treaty documentation until the payment is due
Without the residency certificate and the declaration in the payer's hands, the default rate applies and the excess has to be recovered by return. The documents are the rate.
Treating the accountant's certificate as a bank formality
It is a precondition to the remittance. Groups that do not build it into the invoice cycle discover it as a cash-flow problem at quarter end, every quarter.
What to do next
If the entry is ahead of you, the deliverable to ask for is a vehicle recommendation with the registration list and the annual calendar it implies. If you are already receiving payments from India net of withholding, the first question is whether a lower deduction certificate would have applied — and whether the excess can still be recovered.
We handle Indian entry, the withholding architecture, the transfer pricing report and the remittance certification as one engagement, at a fixed fee agreed before work starts. See a Canadian company opening in India and the remittance certification fee page.
Read and approved for the 2025 and 2026 filing seasons by Udit Gupta, Cross-Border Tax Expert, Legal Quotient Consultants. Published as general information. For a position on your own file, call the 24-hour helpline.
This guide states mechanisms and names forms rather than quoting rates, thresholds or day counts, because those change annually and the guide does not. The current figure for your own tax year is confirmed against the authority that publishes it before anything is filed.
