The residential status is the factor that determines taxability of a company in India. As per law, a company whose residence is in India should pay tax in India. Such a company should pay tax for its global income not just for the income it created in India.
On the other hand, a non-resident company has to pay taxes in India for the income it has created in India and not for its global income.
What is a Resident Indian Company?
As per the Finance Act, 2015, with effect from 1st April, 2016 a company is said to be resident in India in any previous year, if:
(i) it is an Indian company; or
(ii) its place of effective management in that year is in India.
In case the place of effective management (POEM) is located outside India, then the residential status of such company shall be that of a foreign company. As per this context, a foreign company whose place of effective management in India will be treated as a resident Indian company. it has to pay tax for its global income.
The concept of POEM is measured by some criteria including the place of annual general meeting held, the place of Board of Directors meeting etc.
What is an Indian Company?
A Company registered in India is an Indian Company. An Indian Company is the one registered in India under the Companies Act of 1956. Indian Company is treated as resident in India. It has to pay tax in Indian for its global income.