Under Indian Income tax law (ITL), a company, including a foreign company, is required to file an income tax return in India. In the case of a foreign company, the provisions are generally applicable when the foreign company has sufficient nexus or income sourced in India, even if such income is fully subject to withholding tax. The only exception is for specific types of income, provided that the full tax is withheld at source. Until 2016, only a nominal penalty was imposed on the failure to file an income tax return at the discretion of the tax authority, if most or the entire amount of taxes due were otherwise withheld at source. Further, legal proceedings were not applicable unless there was unpaid tax exceeding INR3,000 (US$46). However, this trend has been changed recently. The Indian Finance Act, 2016 amended the penalty provisions applicable for a tax year beginning on April 1, 2016, increasing the risk of penalty for underreporting of income to 50% of the tax liability on income earned in India, even if the tax is fully withheld.

A Global Alert, attached below, provides additional details.

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