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Direct Taxation

October 2026

Foreign Companies Expanding into India: Why Early Tax Structuring Matters

Introduction

Picture of by Anjali Darak
by Anjali Darak

Senior Manager - Direct Tax

India offers significant opportunities for foreign investors, manufacturers, technology companies, and service providers. However, many foreign businesses overlook the Indian tax implications that can arise even without establishing a subsidiary or branch in India. Activities such as employee visits, project execution or service arrangements may trigger tax exposure, resulting in corporate tax liabilities, withholding tax disputes, transfer pricing scrutiny, penalties and litigation. A proactive tax review before entering the Indian market can help identify risks early and ensure a tax-efficient and compliant business structure.

Coming to this month’s, Taxation Times, here’s what we have:

  1. An article on “Foreign Companies Expanding into India: Why Early Tax Structuring Matters”
  2. Case Laws from various courts & jurisdictions
  3. Tax Compliance Calendar – October 2026
  4. Circulars & Notifications – September 2026
  5. Tax News from around the world

We hope that you find this month’s edition of the Taxation Times useful. In case you have any feedback or need us to include any information to make this issue more informative, please feel free to write to us at info@uja.in

Happy Reading!

Best Regards,
UJA Tax Team

Foreign Companies Expanding into India: Why Early Tax Structuring Matters

Overview

Foreign companies expanding into India often focus on commercial strategy first and tax later, but in India, tax exposure can begin well before a subsidiary is even incorporated. This blog breaks down why India market entry tax planning needs to start early, covering the three biggest direct tax triggers for overseas businesses: Permanent Establishment, Business Connection and withholding tax. Whether you’re a manufacturer, technology company, or service provider, understanding these India entry tax considerations upfront can save significant cost, time, and litigation down the line.

Introduction

India remains one of the world’s most attractive destinations for foreign investors, manufacturers, contractors, technology companies, and service providers. However, many overseas businesses underestimate the Indian direct tax implications that can arise even before establishing a subsidiary or branch in India.

A foreign company may inadvertently trigger a taxable presence in India through the creation of a Permanent Establishment, business connection under domestic tax law, on-site employees, project activities, remote services, dependent agents, installation activities or digital business models.

Unfortunately, many businesses evaluate these issues only after contracts have been signed or projects have commenced which results in corporate tax liability, withholding tax disputes, transfer pricing scrutiny, interest, penalties and prolonged litigation.

A carefully planned tax review before entering India can significantly reduce these risks and help businesses operate efficiently while remaining compliant with applicable Indian tax laws and treaty provisions.

Permanent Establishment: A Hidden Tax Risk

One of the most critical tax considerations for foreign companies entering the Indian market is the risk of creating PE in India. Many overseas businesses assume that Indian taxation applies only when a branch office, subsidiary, or other formal legal presence exists in the country.

However, under applicable tax treaties, a foreign enterprise may become taxable in India even without incorporating an Indian entity if its activities create a sufficient business presence within India.

PE exposure can arise in several ways and is often triggered by routine business activities. Frequent visits by senior management for project oversight, contract discussions or business development may attract scrutiny from the Indian tax authorities.

  • Common Situations That May Trigger PE Exposure

Foreign companies should carefully assess whether any of the following activities could create a PE in India:

  • Deployment of employees or technical personnel to India
  • Provision of on-site technical or consultancy services
  • Installation, commissioning, or supervisory activities
  • Construction or assembly projects
  • Long-term service contracts
  • Use of dependent agents who negotiate or conclude contracts on behalf of foreign companies.
  • Repeated visits by management personnel
  • Cross-border service and support engagements

Once a PE is constituted, India may obtain the right to tax the profits attributable to the activities carried out through such PE. This can give rise to several compliance and financial obligations, including:

  • Corporate income tax exposure in India
  • Tax return filing requirements.
  • Maintenance of books and supporting documentation
  • Transfer pricing compliance obligations.
  • Tax audits and assessments.
  • Interest and penalty exposure in case of non-compliance
  • Increased litigation risk

Given how easily these triggers can be activated, it’s worth reading our detailed guide on Permanent Establishment Risk in India for a closer look at how foreign enterprises can safeguard against unintended PE exposure.

Business Connection: Domestic Tax Rules Extend Beyond PE Concepts

While foreign companies often focus on PE exposure under tax treaties, it is equally important to evaluate the concept of “Business Connection” under Indian domestic tax law. India income may still be taxable in India if sufficient business nexus exists with activities carried out in the country.

The scope of business connection is wide and extends beyond having a fixed place of business in India. Foreign companies may inadvertently create a taxable presence through sales support functions, marketing activities, contract negotiations, sourcing operations, digital business models, or the engagement of agents and representatives in India.

With increasing scrutiny of digital transactions and the introduction of concepts such as Significant Economic Presence (SEP), tax authorities are examining commercial arrangements more closely than ever before.

Importantly, the Indian tax authorities often focus on the substance of business operations rather than merely the contractual form. As a result, a structure that appears tax-efficient on paper may still be challenged if core business functions are effectively being performed from India.

  • Common situations that may trigger Business Connection exposure for foreign companies includes:
    • Sales and business development support activities in India
    • Marketing and customer relationship functions
    • Procurement and sourcing operations
    • Digital and e-commerce business activities
    • Significant Economic Presence considerations
    • Use of agents, distributors, or representatives in India

A timely review of business models and operational structures can help foreign enterprises evaluate these risks and implement appropriate safeguards before commencing operations.

Withholding Tax: Small Errors Can Lead to Significant Costs

Another area that frequently results in tax disputes is the withholding tax treatment of cross-border payments. Payments made by Indian customers to foreign companies often require detailed analysis to determine their characterization under Indian tax law and applicable tax treaties.

Whether a payment constitutes royalty, fees for technical services, consultancy fees, management charges, software payments, engineering services, commission income, training fees, or reimbursements can significantly impact the applicable tax treatment. Incorrect characterization may lead to excessive tax withholding, disputes with customers, and assessments by the tax authorities.

Further, many foreign companies encounter situations where Indian customers adopt a conservative approach and withhold taxes despite treaty exemptions or beneficial tax rates being available. This can lead to cash-flow blockages and the need to pursue lengthy refund procedures.

  • Payments commonly subject to withholding tax analysis include:
    • Technical service fees
    • Consultancy charges
    • Engineering and project-related services
    • Software and technology-related payments
    • Royalty income
    • Management and administrative fees
    • Training and support services
    • Equipment installation and related services
  • Incorrect tax treatment can result in:
    • Tax demands and reassessments.
    • Interest and penalty exposure
    • Denial of treaty benefits
    • Prolonged litigation
    • Cash-flow challenges arising from excessive withholding.

A pre-contract review can help determine the correct tax position, evaluate treaty eligibility, and ensure that relevant documentation is maintained to support the adopted tax treatment.

Since treaty eligibility is central to this analysis, it’s advisable to check the applicable agreement directly on the Income Tax Department’s official DTAA repository before finalizing the tax position on any cross-border payment.

Why Tax Advice Should Be Obtained Before Starting the Project

Tax planning is most effective when done before contracts are finalized and personnel are deployed. Once commercial arrangements have been executed, restructuring opportunities become limited and tax positions become more difficult to defend.

Early-stage tax advisory helps businesses evaluate project timelines, monitor employee presence in India, assess installation and supervisory activities, and review agency relationships that may create a taxable presence.

It also enables companies to structure contracts appropriately, clearly distinguish supply and service elements, allocate responsibilities between related entities, and avoid inadvertently creating a taxable footprint in India.

From a withholding tax perspective, advance analysis assists in determining treaty eligibility, classifying payments correctly, and compiling supporting documentation required to substantiate tax positions.

Most importantly, proactive planning reduces the likelihood of future assessments, strengthens defence during audits, improves compliance management, and protects overall project profitability.

Foreign companies that seek professional tax advice before commencing operations are better positioned to navigate India’s evolving tax landscape while focusing on their business objectives. A well-structured tax review at the planning stage can often prevent years of costly litigation and compliance challenges in the future.

Key Questions Every Foreign Company Must Evaluate Before Entering India

Before commencing operations, foreign businesses should carefully consider the following:

  • Will employees or technical personnel visit India?
  • How long will their presence in India continue?
  • Are installation, commissioning, or supervisory services involved?
  • Will any Indian person or entity negotiate or conclude contracts on behalf of the foreign company?
  • Could payments be characterized as royalties or fees for technical services?
  • Is protection available under a tax treaty?
  • Are withholding tax obligations likely to arise?
  • Could the business model create a PE or business connection in India?

Obtaining clarity on these questions at the planning stage can prevent substantial tax costs and management distractions later.

Frequently Asked Questions (FAQ)

Ideally before any contract is signed or employee is deployed. Effective India market entry tax planning begins at the proposal or negotiation stage, since restructuring options narrow considerably once commercial terms and operational activities are already in motion.

Yes. Under both domestic law (Business Connection) and applicable tax treaties (Permanent Establishment), a foreign company can become taxable in India purely on the basis of its business activities, even without incorporating a subsidiary, branch, or liaison office.

Consider a foreign engineering or EPC (engineering, procurement and construction) company that wins an installation contract in India. If its technical team supervises on-site commissioning for more than a few months, or if local personnel are involved in finalizing project terms, this can constitute a construction or installation PE under the applicable tax treaty, making the project’s India-linked profits taxable here, even though the parent company has no registered Indian entity.

International tax planning in India requires layering treaty analysis (DTAA provisions), domestic law concepts like Business Connection and Significant Economic Presence, and withholding tax characterization on top of standard compliance. It’s a more judgment-driven exercise, since tax authorities often examine substance over form when assessing cross-border arrangements.

Without early tax structuring, the tax implications of entering India can include unexpected corporate tax exposure, excessive withholding on cross-border payments, denial of treaty benefits, interest and penalties and prolonged disputes with tax authorities, all of which can erode project margins and delay cash flow.

Conclusion

Expanding into India presents significant commercial opportunities, but it also requires careful consideration of direct tax implications. PE exposure, business connection provisions and withholding tax obligations can arise much earlier than many businesses anticipate.

Companies that seek consultation with tax professionals at the planning stage can help identify risks, implement mitigation measures, and minimize future litigation, compliance burdens, and unexpected tax costs. A proactive tax review before project commencement is often the most effective strategy to safeguard business operations in India.

Planning an India Entry? Get Your Tax Structuring Right from Day One

Whether you’re deploying employees, signing a services contract, or evaluating your first India project, UJA Global Advisory’s international tax team can help you assess PE and Business Connection exposure, structure contracts correctly, and ensure full compliance with Indian tax laws and treaty provisions. Talk to our tax experts today to plan your India entry the right way.

Case Laws

July 2026
[2026] 190 taxmann.com 381 (Delhi - Trib.) [10-09-2026]
Metso Outotec India (P.) Ltd. vs. Deputy Commissioner of Income-tax

FACTS :

  • The assessee-company filed its return and revised return for A.Y. 2020-21. The issue concerned employees’ contributions towards PF/ESI. Two PF contributions of Rs. 34.71 lakhs and Rs. 9.85 lakhs were deposited on 17-6-2019. The assessee contended that 15-6-2019 and 16-6-2019 were Saturday and Sunday, respectively, being bank holidays, and the payments were therefore cleared on the next working day.
  • The AO, in scrutiny assessment, disallowed deduction of Rs. 44.91 lakhs in respect of employees’ PF/ESI contributions on account of delayed deposit.
  • The AO passed a draft assessment order under section 144C(1) on 25-9-2023. The assessee filed objections before the DRP, which issued directions on 30-6-2024. Pursuant thereto, the AO passed the final assessment order dated 26-7-2024 under section 143(3) read with section 144C(13) and section 144B.
  • On appeal to the Tribunal.

HELD I:

  • From examination of the record, it is crystal clear that two payments of PF employees’ contribution amounting to Rs. 34.71 lakh and Rs. 9.85 lakh dated 17-6-2019 were delayed because 15-6-2019 and 16-6-2019 were bank holidays on account of Saturday and Sunday, and the clearance was made by the bank on 17-6-2019. So, there was no intentional delay on the part of the assessee company. Therefore, the action of the AO in not allowing deduction in respect of contributions for PF and Employee State Insurance under section 36 being illegal, is set aside. Ground No. 13 is accepted. [Para 8]
  • In the result, the appeal of the assessee is allowed. [Para 10]
  • In Favour of: The assessee
[2026] 190 taxmann.com 560 (HIGH COURT OF PUNJAB & HARYANA) [16-09-2026]
Alaknanda Coop. Group Housing Society Ltd. v. Chief Commissioner of Income-tax

FACTS:

  • The assessee, a cooperative society, was required to file its return for AY 2020-21 by the extended due date of 15.02.2021. Its audit report, required to be appended and routed through the State department for claiming deduction under Section 80P, was received on 22.02.2021. On 09.03.2021, it applied for condonation of delay; by letter dated 17.03.2021 it was advised to file a belated return under Section 139(4), and it filed the return on 20.03.2021 claiming deduction under Section 80P.
  • The return was processed and assessment was completed under Section 143(3) read with Section 144B, disallowing the Section 80P claim by invoking Section 80AC(ii) for not filing within the time under Section 139(1).
  • In appeal under Section 246A, the CIT(A) dismissed the appeal and upheld the disallowance.
  • In further appeal, the Tribunal dismissed the appeal but granted liberty to the assessee to pursue its separate condonation application before the CCIT relying on CBDT Circular No. 13/2023.
  • Separately, on 12.01.2026, the assessee filed an application before the CCIT seeking condonation of a 34-day delay in filing the return for AY 2020-21, relying on CBDT Circular No. 13/2023. On 15.06.2026, the CCIT rejected condonation, inter alia noting the CIT(A)’s order and holding that the case did not fall within eligible categories under CBDT Circular No. 09/2015; the order did not advert to Circular No. 13/2023.
  • On writ petition before the High Court.

HELD:

Section 80AC(ii) provides that deductions admissible under any provision of the Chapter C.- “Deductions in respect of certain incomes” shall not be allowed if the assessee does not furnish his ITR for the relevant assessment year on or before the due date specified under Section 139(1). However, after making a specific reference to Section 80AC, under Section 119(2)(b), the CBDT has issued circular No. 13/2023 dated 26.07.2023 as per which circular, applications filed by cooperative societies for condonation of delay in the filing of ITRs, seeking therein deduction under Section 80P, for the assessment years 2018-19 to 2022-23, were required to be considered in terms of the said circular. [Para 10]

  • In the case in hand, which pertains to the assessment year 2020-21, the petitioner, a cooperative society, claims deduction under Section 80P after seeking condonation of delay in the filing of its income tax return. Therefore, the petitioner’s case is found to fit like a glove onto the CBDT’s circular No.13/2023 dated 26.07.2023. On a comparison, CBDT’s circular No.9/2015 dated 09.06.2015 is found to apply to applications filed by the assesses seeking therein condonation of delay in filing of income tax returns claiming refunds and returns claiming carry forward of loss/set-off thereof.
  • Thus, CBDT’s circular No.13/2023 dated 26.07.2023 which specifically deals with applications for condonation of delay in the filing of ITRs by cooperative societies seeking deduction under Section 80P would elbow out applicability, to the petitioner’s case, CBDT’s circular No.9/2015 dated 09.06.2015. [Para 11]
  • A perusal of the impugned order dated 15.06.2026, passed by the CCIT reveals that the petitioner’s prayer for condonation of delay in the filing of its ITR has been rejected by relying on circular No.09/2015 dated 09.06.2015 which, in the light of the foregoing observations, renders such order to be unsustainable.
  • A reading of the impugned order dated 15.06.2026 further shows that the same has been passed without even referring to circular No.13/2023 dated 26.07.2023 showing complete non-application of mind on the part of its author especially when a perusal of the petitioner’s application dated 12.01.2026, shows that the petitioner had solely based its claim on circular No.13/2023 dated 26.07.2023. [Para 12]
  • Through the impugned order dated 15.06.2026, the CCIT is found to have rejected the petitioner’s claim inter alia on the ground that the CIT(A) through its order dated 12.12.2025 had considered and upheld the disallowance of deduction under Section 80P. This ground could and should have not been made the basis to reject the petitioner’s application for the simple reason that against the order of CIT(A) dated 12.12.2025, the petitioner had preferred an appeal before the ITAT which was decided on 19.03.2026, through which decision, the ITAT had granted liberty to the petitioner to pursue its application dated 12.01.2026, filed by the petitioner seeking therein condonation of delay in the filing of its ITR for the assessment year 2020-21 in the terms of CBDT’s circular No.13/2023 dated 26.07.2023. [Para 13]
  • In view of the liberty granted to the petitioner by the ITAT, the CCIT should have considered and decided the petitioner’s application for condonation of delay dated 12.01.2026 uninfluenced by the decision of CIT(A) dated 12.12.2025, which he did not. [Para 14]
  • In view of the afore observations of the Court, with regard to passing of the impugned order by the CCIT having not applied his mind by relying on the wrong circular and in the light of the liberty granted by the ITAT having also erroneously based his decision on the dismissal of the petitioner’s appeal by the CIT(A), this Court would have normally remitted the matter to the CCIT for a fresh decision but having considered the matter on its merits, the Court is of the view that the petitioner’s application, seeking condonation of delay in the filing of its ITR for the assessment year 2020-21, claiming therein deduction under Section 80P, deserves acceptance and the reasons for reaching at such conclusion are as follows:- For the assessment year 2020-21, the petitioner should have filed its ITR on or before 15.02.2021 but it did so on 20.03.2021, resulting in a delay of 34 days in its filing.
  • In February/March, 2021 COVID-19 had spread its tentacles far and wide. Its scare was present all over the world and India was no exception. Spread of COVID-19 resulted in imposition of several restrictions, in public interest, by the Government of India. These restrictions applied in February/March, 2021. It was in the interest of the public to adhere to the imposed restrictions. One of the restrictions imposed was with regard to prohibition to hold public gatherings/meetings. Periodic lockdowns were also imposed. It was during such period that there was a delay of 34 days in the filing of its ITR by the petitioner. Delay in the receipt of the petitioner’s audit report, resulting in the late filing of the ITR was also attributable to the spread of COVID-19. Thus, the circumstances leading to the delay of only 34 days on the petitioner’s part in the filing of its ITR were beyond the petitioner’s control especially when it is not disputed that the petitioner’s audit report was also statutorily required to be routed through the State Audit Department.
  • The afore peculiar facts clearly bring the petitioner’s case for condonation of delay under Clause 6(i) and (ii) of the CBDT’s circular No.13/2023 dated 26.07.2023 and that of “genuine hardship”. The CCIT is found to have taken a hyper technical view to reject the petitioner’s case which should have been avoided. While applying circulars issued by the CBDT under Section 119(2)(b) the income tax authorities should be liberal because these circulars apply to cases of genuine hardships being faced by the assessees. [Para 15]
  • In the light of the above discussion, the impugned order dated 15.06.2026, passed by the CCIT, is set aside. The delay of 34 days in the filing of the petitioner’s income tax return for the assessment year 2020-21 is ordered to be condoned and resultantly, the respondents are directed to consider the petitioner’s case with regard to its claim for deduction under Section 80P, for the assessment year 2020-21, in accordance with law. [Para 17]
  • The petition is allowed in the above terms. [Para 18]
  • In Favour of: The Assessee
[2026] 190 taxmann.com 207 (Chennai - Trib.) [02-09-2026]
Trimble Information Technologies India (P.) Ltd. v. Income Tax Officer

Facts I :

The assessee, a wholly owned subsidiary of a US parent, was engaged in software development and IT-enabled/application services for its holding and group companies; for AY 2022-23, it filed its return declaring total income of about Rs. 56.29 crores.

  • The case was selected for scrutiny and, due to international transactions, was referred to the TPO; the TPO proposed an upward TP adjustment of about Rs. 0.33 lakh by imputing interest on outstanding receivables from AEs; the AO issued a draft order accordingly.
  • On objections, the DRP sustained the TP adjustment on interest on receivables, and the AO passed the final order pursuant to DRP directions.
  • On appeal to the Tribunal, the assessee contended that it was a debt-free company based on its 31-03-2022 financials and relied on a similar deletion in its own earlier year.

HELD I:

  • The primary contention of the assessee regarding levy of notional interest on receivables is that the assessee-company is the debt free company. In this regard, attention was drawn to the financial statements of the company from where we notice that the assessee does not have any debts outstanding as of 31.03.2022. The AR also submitted that the agreed credit period with the AEs towards receivables is 90 days whereas the TPO while making the upward adjustment has given credit only for 30 days.
  • It is also brought to the attention that the identical adjustment made in assessee’s own case for AY 2020-21 was deleted by the Coordinate Bench of the Tribunal in Trimble Information Technologies India (P.) Ltd. v. ITO [IT (TP) A No. 28 (Chny.) of 2024, dated 14-2-2025] on the same ground that when the assessee is a debt free company, no adjustment towards interest on receivable is warranted.
  • For the year under consideration, on perusal of facts, it is noticed that the assessee is a debt-free company and therefore, the above decision of the Coordinate Bench is applicable to this year as well. Respectfully following the decision, the interest charged on outstanding receivables deserves to be deleted. [Para 5].
  • In Favour of: The Assessee

Facts II:

  • The assessee, a wholly owned subsidiary of a US parent engaged in software development and IT-enabled/application services for its holding and group companies, was assessed for AY 2022-23 following scrutiny.
  • During assessment, the assessee furnished a breakup of training and software maintenance charges aggregating to about Rs. 13.08 crores; the AO disallowed about Rs. 9.43 crores, which included ESOP-related expenditure.
  • In objections before the DRP, the assessee stated that the actual ESOP expenditure was about Rs. 7.50 crores; the DRP treated the ESOP outlay as capital and confirmed disallowance to the extent of Rs. 7.50 crores, granting relief for the balance; the AO passed the final order accordingly.
  • On appeal to the Tribunal, the assessee submitted that the ESOP/ESPP cost was recovered from employees and remitted to the parent company whose shares were allotted to the employees, and contended that such cost was allowable as revenue expenditure under section 37.

HELD II:

  • The Tribunal has heard the parties and perused the material available on record. The Counsel submitted that the facts pertaining to the ESOP expenditure are not properly appreciated by the lower authorities. The Counsel further submitted that the assessee recovers the ESOP cost from the employees and the amount recovered is remitted to the parent company whose shares are allotted to the employees as part of ESOP. The Counsel took the Tribunal through the details submitted by the assessee before the lower authorities in this regard [page 66 to 84 of paper book].

The allowability of the ESOP expenditure is no longer res integra since the Hon’ble High Courts and the Coordinate Benches have been consistently deciding the issue in favour of the assessee. It is relevant to consider the following observations of the Hon’ble Karnataka High Court in the case of CIT v. Biocon Ltd. [2020] 121 taxmann.com 351/276 Taxman 1/430 ITR 151 (Karnataka): “We have considered the submissions made by learned counsel for the parties and have perused the record.

The singular issue which arises for consideration is whether discount on the issue of ESOPs i.e., difference between the grant price and the market price on the shares as on the date of grant of options is allowable as a deduction under Section 37 of the Act.

Thus, from perusal of Section 37(1) it is evident that the provision permits deduction for the expenditure laid out or expended and does not contain a requirement that there has to be a pay out. Section 37 does not envisage incurrence of expenditure in cash.

In the instant case, the ESOPs vest in an employee over a period and it is well settled that if a business liability has arisen in the accounting year, the same is permissible as deduction, even though the liability may have to be quantified and discharged at a future date. Discount on issue of ESOPs is not a contingent liability but is an ascertained liability.

The expression ‘expenditure’ will also include a loss and therefore issuance of shares at a discount, where the assessee absorbs the difference between the price at which it is issued and the market value of the shares, would also be expenditure incurred for the purposes of Section 37(1). The primary object is not to waste capital but to earn profits by securing consistent services of the employees and therefore the same cannot be construed as short receipt of capital.

The deduction of discount on ESOP over the vesting period is in accordance with the accounting in the books of accounts. Reliance by the revenue on Infosys Technologies Ltd. is of no assistance as it dealt with TDS consequences and a different period of law. In view of the preceding analysis, the substantial questions of law are answered against the revenue and in favour of the assessee.” [Para 7]

  • Respectfully following the above judicial precedence, we hold that the AO/DRP is not correct in disallowing the amount of ESOP cost and the same is directed to be deleted. The Ground raised in this regard is allowed. [Para 9]
  • In Favour of: The Assessee

Circular & Notifications September 2026

A. Notifications

NOTIFICATION NO. 118/2026 [S.O. 5003(E)/F. NO. 225/84/2024/ITA-II], DATED 09-09-2026

SECTION 258 OF THE INCOME-TAX ACT, 2025 – DISCLOSURE OF INFORMATION RELATING TO ASSESSES – NOTIFIED OFFICER FOR SHARING OF INFORMATION REGARDING INCOME-TAX PAYERS FOR IDENTIFYING ELIGIBLE BENEFICIARIES UNDER VARIOUS WELFARE SCHEMES OF THE STATE GOVERNMENT

 

In pursuance of section 258(1)(b) of Income-tax Act, 2025, the Central Government hereby specifies Secretary, ITE&C, Government of Andhra Pradesh for the purposes of the said section in connection with sharing of information regarding income-tax payers for identifying eligible beneficiaries under various welfare schemes being implemented by Government of Andhra Pradesh.

NOTIFICATION NO. 2 OF 2026 [DGITS/ADG(S)-2/REPORTING PORTAL/2026/3769], DATED 10-09-2026
  1. Section 508 of the Income-tax Act, 2025 and rule 237 of Income-tax Rules, 2026 require specified reporting persons to furnish statement of financial transaction (SFT).
  2. For the purposes of pre-filling the return of income, sub-rule 6 of rule 237 specifies that a statement of financial transaction under section 508(1) containing information relating to capital gains on transfer of units of Mutual Funds shall be furnished by the class of person (reporting person) mentioned in column 4 of sl. no. 1 of the Table under the said rule in such Form, at such frequency, and in such manner, as may be specified by the Principal Director General of Income Tax (Systems) or the Director General of Income Tax (Systems), as the case may be, with the approval of the Board.
  3. In exercise of the powers conferred under sub-rule 6 of rule 237, the DGIT(S) hereby specifies the guidelines for preparation and submission of statement of financial transaction (SFT), which are enclosed as Annexure Aand Annexure B The format of control statement to be submitted by the Designated Director is enclosed as Annexure C. The data structure and validation rules are enclosed as Annexure D and Annexure E respectively.
  4. All Registrar and Share Transfer Agents registered under section 12(1) of the Securities and Exchange Board of India Act, 1992 (15 of 1992) are required to prepare the data file in prescribed format from their internal system. Reporting entities are required to submit the data files using SFTP server using the login credentials (communicated separately).
  5. A separate control statement (refer annexure C) is required to be signed, verified and furnished by the Designated Director.
  6. The statement of financial transaction will be submitted on half yearly basis. The SFT relating to 1st half of the Financial Year ending on 30th September and remaining half of the financial year ending on 31st March shall be furnished on or before 31st of October and 30th of April respectively.
  7. The reporting entities are also required to provide information of Mutual Fund transactions, reported to Income Tax Department, to the account holder which will enable taxpayers to reconcile the information displayed in the Annual Information Statement (AIS) (Form 168).
  8. In case the reporting person/entity comes to know or discovers any Inaccuracy in the information provided in the statement or the defects have been communicated to the reporting person/entity, it is required to remove the defects by submitting a correction/deletion statement.
  9. The reporting person/entity is required to document and implement appropriate information security policies and procedures with clearly defined roles and responsibilities to ensure security of submitted information and related information/documents. The reporting person/entity is also required to document and implement appropriate archival and retrieval policies and procedures with clearly defined roles and responsibilities to ensure that submitted information and related information/documents are available promptly to the competent authorities.
  10. This issues with the approval of the CBDT. This Notification shall come into effect from the date of issue.
Notification No. 120/2026 [F. No. 370142/30/2026-TPL] / G.S.R. 822(E): Income tax (Fourth Amendment) Rules, 2026 DATED 17-09-2026

G.S.R. 822(E). In exercise of the powers conferred by section 533 read with sections 262, 273, 413, 514 and 515 of the Income-tax Act, 2025 (30 of 2025), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 2026, namely:

  1. (1) These rules may be called t he Income-tax (Fourth Amendment) Rules, 2026.

(2) In these rules,

    • rules 2 to 4 shall be deemed to have come into force on the 1st day of April, 2026; and
    • rules 5 to 8 shall come into force on the date of their publication in the Official Gazette.
  2. In the Income-tax Rules, 2026 (hereinafter referred to as the said rules), in rule 160,
    • in sub-rule (3), for the brackets and figure “(i)”, the brackets and letter “(a)” shall be substituted;
    • in sub-rule (4), for the brackets and figure “(i)”, the brackets and letter “(a)” shall be substituted.
  3. In the said rules, in rule 176, in sub-rule (3), in clause (a), in sub-clause (ii), for the words “by affixing digital signature”, the words “by way of an electronic communication” shall be substituted.
  4. In the said rules, in rule 225,
    • in sub-rule (4), clause (c) shall be omitted;
    • in sub-rule (19), for the words “or to arrest”, the word “of” shall be substituted;
    • in sub-rule (56), for the word, figures, brackets and letter “sub-rule 53(iv).S”, the word, figures, brackets and letter “sub-rule 53(d)” shall be substituted;
    • sub-rules (75), (76), (77), (78), (79), (80), (81), (82), (83) and (91) shall be omitted;
    • in sub-rule (87), the brackets and words “(except arrest and detention)” shall be omitted.
  5. In the said rules, in rule 246, in sub-rule (4), for the figures, letters and word “30th September, 2026”, the figures, letters and word “31st March, 2027” shall be substituted.
  6. In the said rules, in rule 256, in sub-rule (4), for the figures, letters and word “30th September, 2026”, the figures, letters and word “31st March, 2027” shall be substituted.

Tax Calendar October 2026

07th October 2026

  • Uploading of declarations received in Form No. 127 (Income-tax Rules, 2026) from the buyer in the month of September 2026.
  • Upload the declarations received from recipients in Form No. 121 (Income-tax Rules, 2026) during the quarter ending September 2026.
  • Due date for deposit of tax deducted/collected for the month of September 2026. However, all sum deducted/collected by an office of the government shall be paid to the credit of the Central Government on the same day where tax is paid without production of challan.

15th October 2026

  • Furnishing of quarterly statement in Form No. 148 (Income-tax Rules, 2026) to be furnished by a unit of IFSC, as referred to section section 147(1)(b) of the Income-tax Act, 2025, in respect of remittances made for the quarter ending September 30, 2026.
  • Furnishing of quarterly statement in Form No. 147 (Income-tax Rules, 2026) to be furnished by an authorised dealer in respect of remittances made for the quarter ending September 30, 2026.
  • Statement in Form No. 1 (Income-tax Rules, 2026) by the stock exchange for the month of September 2026, in respect of transactions in which client codes have been modified after registering in the system.
  • Furnishing of statement in Form No. 92 (Income-tax Rules, 2026) by the specified fund or stockbroker in respect of a non-resident referred to in rule 157 for the quarter ending September 30, 2026.
  • Due date for furnishing Form No. 137 (Income-tax Rules, 2026) by an office of the Government where TDS/TCS for the month of September 2026 has been paid without the production of a challan.
  • Form 132 due date for issue of Certificate under section 395(4) for tax deducted at source in the month of August 2026.

21st October 2026 – (Extended due date)

  • The Central Board of Direct Taxes (CBDT) has extended the due date from September 30, 2026, to October 21, 2026 for filing of audit report under section 44AB for the Assessment Year 2026-27 in the case of a corporate assessee or non-corporate assessee (who is required to submit his/its return of income on October 31, 2026 is now November 21, 2026)

30th October 2026

  • Furnishing of challan-cum-statement in Form No. 141 (Income-tax Rules, 2026) in respect of deduction of tax under section 393(1) [Table Sl. No. 2(i), 3(i), 6(ii) & 8(vi)] of the Income-tax Act, 2025 for the month of September 2026.

31st October 2026

  • Furnishing of an annual statement of income taxable at concessional rate under section 115AD (Income-tax Act, 1961) in Form 10-IH (Income-tax Rules, 1962) (if assessee is required to submit return of income on or before October 31, 2026).
  • Furnishing of an annual statement of income exempt under section 10(4D) (Income-tax Act, 1961) in Form 10-IG (Income-tax Rules, 1962) (if assessee is required to submit return of income on or before October 31, 2026).
  • Furnishing of audit report in Form No. 10BC (Income-tax Rules, 1962) along with particulars forming part of its Annexure by electoral trust.
  • Furnishing report under Section 115JB (Income-tax Act, 1961) in Form No.29B (Income-tax Rules, 1962) for computing the book profits of the company during the previous year 2025-26 (if the assessee is required to submit return of income on November 30, 2026).
  • Furnishing report under Section 115JC (Income-tax Act, 1961) in Form No.29C (Income-tax Rules, 1962) for computing Adjusted Total Income and Alternate Minimum Tax of the person other than company during the previous year 2025-26 (if the assessee is required to submit return of income on November 30, 2026).
  • Audit report under section 44AB (Income-tax Act, 1961) for the assessment year 2026-27 in the case of an assessee who is also required to submit a report pertaining to international or specified domestic transactions under section 92E (Income-tax Act, 1961).
  • Report to be furnished under section 92E (Income-tax Act 1961) in Form No. 3CEB (Income-tax Rules 1962) in respect of international transaction and specified domestic transaction.
  • Filing of quarterly statement of tax deposited in Form No. 142(Income-tax Rules, 2026) in relation to transfer of virtual digital asset under section 393(1) [Table: S. No. 8(vi)] of the Income-tax Act, 2025 to be furnished by an Exchange for the quarter ending September 30, 2026.
  • Filing of quarterly statement of collection of tax at source under section 397(3)(b) of the Income-tax Act, 2025 in Form No.143 (Income-tax Rules, 2026) for the quarter ending September 30, 2026.
  • Filing of quarterly statement of TDS in Form No. 144 (Income-tax Rules, 2026) in respect of payments other than salary made to non-residents for quarter ending September 30, 2026.
  • Intimation by a designated constituent entity, resident in India, of an international group in Form No. 3CEAB (Income-tax Rules, 1962) for the accounting year 2025-26.
  • Furnishing of declaration in Form No.10BA (Income-tax Rules, 1962) by an assessee claiming deduction under Section 80GG (Income-tax Act, 1961) in respect of the rent paid for residential accommodation (If the assessee is required to furnish the return of income on or before October 31, 2026).
  • Furnishing of an annual statement of exempt income under Section 10(4D) (Income-tax Act, 1961) and income taxable under Section 115AD (Income-tax Act, 1961) in Form No.10-IK (Income-tax Rules, 1962) (if assessee is required to submit return of income by October 31, 2026).
  • Furnishing report in Form No.10DA (Income-tax Rules, 1962) certifying the claim for additional employee cost under Section 80JJAA (Income-tax Act, 1961) during the previous year 2025-26 (if the assessee is required to submit return of income on November 30, 2026).
  • Furnishing of audit report in Form No.3CE (Income-tax Rules, 1962) under Section 44DA (Income-tax Act, 1961) by a non-resident and foreign company for the previous year 2025-26 (if the assessee is required to submit return of income on November 30, 2026).
  • Filing of quarterly statement in Form No. 138 (Income-tax Rules, 2026) by employers responsible for TDS from salaries paid to employees under section 392 or by specified bank in respect of income paid to specified senior citizen under section 393(1) [Table: Sl. No. 8(iii)] of the Income-tax Act, 2025 for the quarter ending September 30, 2026.
  • Filing of quarterly statement in Form No. 140 (Income-tax Rules, 2026) by deductors responsible for deduction of tax at source on non-salary payments such as commission, brokerage, professional fees, rent, etc. made to residents for the quarter ending September 30, 2026.
  • Furnishing of statement in Form No.3CFA (Income-tax Rules, 1962) for exercising the option to pay tax at a concessional rate under Section 115BBF (Income-tax Act, 1961) for income in the nature of royalty arising from patent developed and registered in India (if the assessee is required to submit return of income by October 31, 2026).
  • Furnishing of the report in Form No.3CEA (Income-tax Rules, 1962) relating to computation of capital gains in case of slump sale taxable under Section 50B (Income-tax Act, 1961) (if the assessee is required to submit return of income on or before November 30, 2026).
  • Furnishing of Audit Report in Form No.10CCB (Income-tax Rules, 1962) by assessee claiming deduction under Section 80-I , Section 80-IA , Section 80-IB or section Section 80-IC (Income-tax Act, 1961) (if the assessee is required to submit the return of income on or before November 30, 2026).
  • Furnishing of the certificate in Form No.62 (Income-tax Rules, 1962) by the amalgamated company, confirming achievement of the prescribed production level and its continuation in subsequent years. (if the company is required to submit return of income on or before October 31, 2026).
  • Furnishing audit report in Form No.3AD, 3AC (Income-tax Rules, 1962) by assessee claiming deduction under Section 33ABA, 33AB (Income-tax Act, 1961) for the previous year 2025-26 (if the assessee is required to submit return of income on November 30, 2026).
  • Furnishing of certificate Form No.10CCE (Income-tax Rules, 1962) by a resident individual being a patentee claiming deduction under Section 80RRB (Income-tax Act, 1961) in respect of royalty income on patents (if the assessee is required to submit return of income on or before October 31, 2026).
  • Furnishing of certificate in Form No.10CCD (Income-tax Rules, 1962) by a resident individual being an author (including a joint author) claiming deduction under Section 80QQB (Income-tax Act, 1961) in respect of royalty income (if the assessee is required to submit return of income on or before October 31, 2026).
  • Furnishing of report in Form No.10CCF (Income-tax Rules, 1962) certifying that the amount of deduction under Section 80LA (Income-tax Act, 1961) has been correctly claimed during the previous year 2025-26 (if the assessee is required to submit return of income on or before October 31, 2026).

OECD Releases Major PILLAR Two Implementation Package

The OECD released new guidance and implementation materials for the Pillar Two global minimum tax framework. The package includes:

  • Updated GloBE Information Return (GIR) requirements.
  • Guidance on Explicitly Conditional Taxes and their treatment as covered taxes.
  • Clarifications regarding QDMTT Safe Harbour rules where fiscal periods do not align.
  • A framework for conducting legislative reviews of countries’ domestic minimum tax laws.

OECD Publishes September 2026 Pillar Two Guidance – oecdpillars.com

Netherlands Pillar Two Safe Harbour Bill

The Netherlands presented draft legislation as part of its 2027 Tax Plan that would:

  • Introduce four additional Pillar Two safe harbours.
  • Extend the Transitional CbCR Safe Harbour.
  • Amend treatment of certain 52- and 53-week accounting periods.

Pillar Two Developments Tracker: 2026 – oecdpillars.com

 

OECD Tax Policy Reforms 2026 Report

The OECD published its annual Tax Policy Reforms 2026 report on 8 September 2026, highlighting that:

  • Corporate income tax rates remained broadly stable.
  • Countries increasingly used targeted incentives for R&D, AI and strategic sectors.
  • VAT obligations were expanded for digital platforms and non-resident suppliers.
  • Property taxes and health-related excise taxes became more important revenue raisers

Tax Policy Reforms 2026 | OECD

 

Germany’s Digital VAT Enforcement Strategy

Germany announced a new tax administration strategy using:

  • Artificial intelligence for tax audits and fraud detection.
  • Centralized tax data platforms.
  • Preparation for real-time VAT transaction reporting.
  • Enhanced digital compliance monitoring connected with its e-invoicing initiative

International Indirect Tax Update | September 2026 | RSM Belgium