The tax department today said the POEM rules that require foreign firms to pay taxes in India if the effective control is within the country will not apply to companies with a turnover of Rs 50 crore or less in a financial year. Last month, the tax department had come out with the long-awaited Place of Effective Management (POEM) rules that will require foreign companies in India and Indian firms with overseas subsidiaries to pay local taxes based on where the business if effectively controlled.
In a clarificatory circular, the Central Board of Direct Taxes (CBDT) said the provision “shall not apply to a company having turnover or gross receipts of Rs 50 crore or less in a financial year”.
While issuing the POEM rules, effective the current fiscal, CBDT had said the intent is to target shell companies and those which are created for retaining income outside India although real control and management of affairs are located in India.
Nangia and Co Managing Partner Rakesh Nangia said the circular intends to provide clarity that POEM can be invoked only in case of companies with a turnover of more than Rs 50 crore as the first circular did not clearly mention the threshold.
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“This circular re-emphasises that the government intends to contain avoidable litigation by placing a cap on category of companies for which POEM can be invoked,” he said.
Amit Maheshwari, Partner, Ashok Maheshwary & Associates LLP, said the clarification is welcome as this was causing unnecessary confusion in the minds of taxpayers.