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Branch Tax

Updated on July 18, 2023

Branch tax, also known as branch profits tax, is a tax levied by the Indian government on the profits earned by foreign companies operating through a branch or a permanent establishment in India. It is a tax imposed on the income generated by the branch of a foreign company within the country’s jurisdiction.

How is branch tax applied on companies within India and outside

The branch tax is levied on foreign companies operating through a branch or permanent establishment in India. The tax treatment varies for companies within India and those outside India. Here’s an explanation of how branch tax is levied based on these distinctions:

Foreign Companies with a Branch in India –

Branch tax is imposed on the profits or income earned by the foreign company’s branch in India.
The tax rate for branch tax is generally higher than the corporate tax rate for Indian companies.
Compliance requirements include maintaining proper accounting records, filing tax returns, and paying branch tax on time.
Double taxation relief may be available through tax treaties between India and the foreign company’s home country.

For Indian Companies with Branches Outside India –

Indian companies are taxed on their global income, including income generated by branches located outside India.
Foreign tax credits can be claimed for taxes paid on branch income in foreign jurisdictions to avoid double taxation.