Place of Effective Management (POEM) in India for Foreign Companies

Written by Nihal Srivastava, Krystal7 Consultants. Last updated 2 October 2026.

A foreign company is resident in India if its place of effective management (POEM) is here, under section 6(10) of the Income Tax Act, 2025. POEM is where key management and commercial decisions for the business as a whole are, in substance, made. CBDT Circular 6 of 2017 sets the tests. Circular 8 of 2017 says they do not apply where turnover is INR 50 crore or less in a financial year. A resident company pays Indian tax on its worldwide income.

This page explains the POEM test, the active business outside India test, the INR 50 crore threshold and the founder risk. It also covers the tax cost, the treaty tie breakers and the first year rules that moved from section 115JH to section 220. It ends with two worked examples, a checklist and 18 FAQs. Rupee amounts use Indian grouping: INR 1,00,00,000 is one crore.

What is place of effective management in India?

Place of effective management is the test India uses to decide whether a company formed abroad is tax resident in India. Section 6(10)(b) of the Income Tax Act, 2025 defines it. POEM is "a place where key management and commercial decisions necessary for the conduct of business of the company as a whole are, in substance, made."

The test looks at substance. The place where the board signs papers matters less than the place where the real decisions happen. A company can be incorporated in Delaware, London or Dubai and still be resident in India.

POEM replaced an older and much narrower test. Up to assessment year 2016-17, section 6(3) of the Income Tax Act, 1961 used a control test. A foreign company was resident only if its control and management sat wholly in India. The Finance Act, 2015 brought in POEM. The Press Information Bureau release of 24 Jan 2017 says it applies from assessment year 2017-18 onwards.

The Income Tax Act, 2025 came into force on 1 Apr 2026. It moved the rule from section 6(3) to section 6(10) and kept the substance. The 1961 definition referred to "an entity". The 2025 definition refers to "the company". We read that as a drafting change, not a change in the test.

Point	Income Tax Act, 1961	Income Tax Act, 2025
Section	6(3)(ii) and its Explanation	6(10)(a)(ii) and 6(10)(b)
Period tested	Previous year	Tax year
Indian company	Always resident, 6(3)(i)	Always resident, 6(10)(a)(i)
Foreign company	Resident if POEM "in that year, is in India"	Resident if POEM "is in India in that tax year"
Definition	Decisions for "an entity as a whole"	Decisions for "the company as a whole"
First year computation rules	Section 115JH	Section 220
Scope of total income for a resident	Section 5(1)	Section 5(1)

Sources: section 6 of the Income Tax Act, 2025; section 6 of the Income Tax Act, 1961; Income Tax Department section navigator.

When is a foreign company resident in India under POEM?

A foreign company is resident in India for a tax year if its key decisions are in substance made in India that year. The Assessing Officer tests each tax year separately. If POEM moves during the year, Circular 6 presumes India if it was "mainly/predominantly" in India.

Section 6(10) has no day count and no numeric limit. The numbers come from CBDT Circular No. 6 of 2017, dated 24 Jan 2017. The circular runs the test in two branches.

1. A company in active business outside India gets a presumption. Its POEM is presumed outside India when most board meetings take place outside India.
2. For any other company, the officer finds who makes the key decisions. Then the officer finds where those people make them.

Section 6(12) adds a further rule. A person resident in India for any source of income is resident for all sources in that tax year. So a POEM finding pulls in all the company's income, not one stream.

Residence is a yearly question. Paragraph 10 of Circular 6 says POEM "will also be required to be determined on year to year basis". A company can be resident in tax year 2026-27 and non resident in 2027-28.

Which CBDT circulars and notifications govern POEM in 2026?

Four instruments from 2017 and 2018 still govern POEM. Section 536 of the Income Tax Act, 2025 keeps 1961 Act circulars and notifications alive. The condition is that they do not conflict with the new Act. The CBDT transition FAQ says so in Q1.20, citing section 536(2)(j).

Instrument	Date	What it does
CBDT Circular No. 6 of 2017, F. No. 142/11/2015-TPL	24 Jan 2017	Guiding principles for determining POEM: active business test, presumption, primary and secondary factors, approvals
CBDT Circular No. 8 of 2017	23 Feb 2017	Guidelines do not apply to a company with turnover or gross receipts of INR 50 crore or less in a financial year
CBDT Circular No. 25 of 2017, F. No. 142/11/2015-TPL (Part I)	23 Oct 2017	Clarifies paragraph 7.1: following group policies through an Indian regional headquarters is not, by itself, the board standing aside
Notification No. 29/2018, S.O. 3039(E)	22 Jun 2018	Exceptions, modifications and adaptations under section 115JH for a foreign company resident in India on account of POEM
Income Tax Act, 2025, sections 6(10) and 220	In force 1 Apr 2026	Section 6(10) restates the residence test. Section 220 is the successor to section 115JH in the official section navigator

Up to 2 Oct 2026, we found no new POEM circular and no notification under section 220. The INR 50 crore threshold has not changed. Until the CBDT issues one, we apply the 2017 and 2018 instruments through section 536.

What is the active business outside India test?

A company is engaged in active business outside India only if it meets all four conditions in paragraph 5 of Circular 6. Passive income must be at most 50 percent of total income. Less than 50 percent of its assets, employees and payroll may be in India. Each figure is the average of the tax year and the two years before it.

The test decides which branch of POEM applies. Passing it gives the company a presumption. Failing it sends the officer to a full facts test.

Condition	Limit	How the circular measures it
Passive income	Not more than 50% of total income	Income from buying from and selling to associated enterprises, plus royalty, dividend, capital gains, interest and rental income. Interest is not passive for a bank or a public financial institution
Assets in India	Less than 50% of total assets	Depreciable assets: average of tax value in the country of incorporation at the start and end of the year. Pooled assets: same, on the pool. Other assets: book value
Employees in India	Less than 50% of total employees	Employees situated in India or resident in India. Count is the average of the start and end of the year. Includes people not on the payroll who perform similar tasks
Payroll in India	Less than 50% of total payroll	Payroll on employees situated in India or resident in India. Payroll covers salaries, wages, bonus and other compensation, including pension and social costs the employer bears

Source: CBDT Circular No. 6 of 2017, paragraphs 5 and 7.2.

How the circular measures each figure

Total income is the income computed for tax purposes under the laws of the country of incorporation. Where those laws do not require a computation, the circular uses the books of account.

The circular takes "the average of the data of the previous year and two years prior to that". A company in existence for a shorter period uses the data for that period. A company may keep a different accounting year from the Indian tax year. The circular then uses the accounting year ending during the Indian year and the two before it. So a US company with a calendar year uses calendar 2026, 2025 and 2024 for tax year 2026-27.

The employee count catches more than staff on the payroll. Contractors in India who do the work an employee would do count as employees in India. We see founders miss this when they engage Indian freelancers directly through the foreign company.

The circular does not say where shares of an Indian subsidiary are "situated". On our reading, shares of an Indian company are assets situated in India. A holding company whose main asset is its Indian subsidiary can fail the asset test on that alone.

The presumption for a company that passes

Paragraph 7 covers a company engaged in active business outside India. Its POEM "shall be presumed to be outside India" if most board meetings take place outside India. Circular 6 gives an example. A company held five board meetings in a year: two in India and three outside India. All its directors were Indian residents. The circular presumed its POEM to be outside India.

The presumption can fail. Under paragraph 7.1, POEM is in India if the board is "standing aside". That means the holding company or persons resident in India exercise the board's powers.

Example 4 of the circular shows how. The foreign company's own team signed all contracts. But every contract above INR 10 lakh needed a decision from the Indian parent. More than 99 percent of contracts crossed that line. The circular says POEM may not be presumed outside India in such a case.

Circular 25 of 2017 narrowed paragraph 7.1. A regional headquarters in India may apply global policies on payroll, accounting, HR, IT, supply chain and routine banking. If those policies are general and not specific to one entity, that alone does not mean the board stands aside. The same circular warns that GAAR may apply where this clarification is used for "abusive/ aggressive tax planning".

How is POEM decided when the company fails the active business test?

A company that fails any of the four conditions gets no presumption. Paragraph 8 of Circular 6 then runs two stages. First, the officer identifies the person or persons who in fact make the key management and commercial decisions. Second, the officer finds the place where those decisions are in fact made.

The circular gives primary factors and secondary factors. The officer looks at secondary factors only when the primary factors do not settle the answer.

Factor	Type	What the circular says
Place where the board regularly meets	Primary	Counts if the board retains and exercises its authority. Formal meetings alone are "not conclusive"
Executive committee	Primary	Where the board has delegated authority, in law or in fact, the committee's location matters
Head office	Primary	"A very important factor". It is where senior management and their support staff are mainly based, return to after travel, or meet on strategy
Use of technology	Primary	Video and phone mean physical presence matters less. The usual residence of decision makers becomes relevant
Circular resolutions	Primary	Frequency, type of decision and the location of the person who in fact exercises authority
Shareholder decisions	Primary	Decisions reserved to shareholders by law do not set POEM. Shareholder conduct that removes the board's real authority can
Day to day decisions	Primary	Routine decisions of junior and middle management are not key decisions
Main and substantial activity	Secondary	Used when primary factors are inconclusive
Accounting records	Secondary	Where the books are kept

Source: CBDT Circular No. 6 of 2017, paragraphs 8.2 and 8.3.

Paragraph 10 adds four principles. No single factor decides POEM. The officer looks at the whole year, not a "snapshot" of one moment. If POEM moves during the year, it is presumed in India if it was "mainly/predominantly" in India. And the result turns on all the facts.

Example 5 of the circular is the case we see most often in structuring work. An Indian group had a holding company abroad that earned only dividends and interest. Its POEM was in India, exercised by the ultimate parent. Its subsidiaries ran active businesses and held their board meetings abroad. Each of those subsidiaries is tested on its own facts.

Does the INR 50 crore turnover threshold exempt small companies?

In practice, yes. CBDT Circular No. 8 of 2017 is dated 23 Feb 2017. It says the POEM guidelines shall not apply where turnover or gross receipts are INR 50 crore or less in a financial year. Circular 25 of 2017 describes it as saying the "PoEM provisions shall not apply" to such a company.

Three limits apply to this relief.

1. The threshold sits in a circular, not in section 6(10). A circular binds the Income Tax Department. It does not bind a court.
2. The circular refers to the company's turnover or gross receipts and does not limit them to India. On our reading, the test is the company's total turnover worldwide, not the Indian portion.
3. It is tested each financial year. A company at INR 46 crore this year and INR 58 crore next year loses the relief for the second year.

The circular does not say which exchange rate converts foreign currency turnover into rupees. As our practice, we use a published reference rate for the last day of the accounting year. We record the rate and its source in the file. Take advice where the figure is close to INR 50 crore.

Company's turnover or gross receipts in the financial year	Do the POEM guidelines apply?	What we do
INR 50 crore or less	No, under Circular 8 of 2017	Keep board minutes and decision records anyway, because the threshold can be crossed next year
Above INR 50 crore, passes the active business test	Yes, with the board meeting presumption	Hold the majority of board meetings outside India and avoid the board "standing aside"
Above INR 50 crore, fails the active business test	Yes, two stage facts test	Move key decision makers or decisions outside India, or plan for Indian residence

What does not create POEM in India on its own?

Paragraph 9 of Circular 6 lists five facts that do not, by themselves, put POEM in India. Each one can still add weight when combined with other facts. The officer reads them together with the factors in paragraph 8.

Fact	Circular 6, paragraph 9	Our practical view
The foreign company is wholly owned by an Indian company	Not enough by itself	Common for outbound Indian groups. The subsidiary's own board must decide its business
The foreign company has a permanent establishment in India	Not enough by itself	A PE taxes profits from India. It does not make the company resident
One or some directors live in India	Not enough by itself	Risk rises when the directors in India are the ones who decide
Local management in India runs the Indian activities	Not enough by itself	Keep group strategy and approvals at the foreign board
Support functions of a preparatory or auxiliary character are in India	Not enough by itself	Back office, accounting and IT support are fine. Sales and strategy are not support functions

How do Indian resident founders of a US company create POEM risk?

Founders living in India create POEM risk when they make the key decisions of their US company from India. Under Circular 6, India looks at who decides and where. If the founders are the decision makers and they live and work in India, the decisions are made in India unless the record shows otherwise.

This pattern is common with Delaware companies whose founders move back to India. It also shows up when a start up hires its team in India through the parent and not through an Indian subsidiary. We cover the structure question in our guide to a Delaware C Corp with an India subsidiary.

Four facts drive most of the risk.

1. Turnover above INR 50 crore. Below the line, Circular 8 keeps the guidelines away.
2. Payroll and staff. Founders on the US payroll who live in India count as employees resident in India. So do Indian contractors doing employee work. A small US team plus a large Indian team can fail the payroll or employee test.
3. Board practice. Video board meetings with the founders dialling in from Bengaluru are weak evidence. They make it hard to show that most meetings took place outside India. Paragraph 8.2(d) points to the usual residence of the decision makers.
4. Approvals in practice. Founders often settle pricing, senior hires, fund raises and product bets over WhatsApp from India. Those are key decisions made in India.

Founder situation	Active business test	Likely POEM risk	Fix
Founders live in the US; Indian subsidiary runs engineering	Usually passes; on our reading, the subsidiary's own staff are not the parent's employees	Low	Keep subsidiary contracts at arm's length
One founder in India, one in the US; board of three meets in the US	Usually passes	Low to moderate	Majority of meetings outside India; US based director takes part in each key decision
Both founders in India; turnover under INR 50 crore	Not applied, Circular 8	Low under the guidelines; the statute still applies	Build the record now, before turnover grows
Both founders in India; parent pays Indian contractors directly; turnover above INR 50 crore	Can fail on employees or payroll	High	Move Indian staff to an Indian subsidiary; move decisions and meetings outside India
Holding company abroad that only holds shares in the Indian company	Fails on passive income and, on our reading, assets	High if the Indian promoters run it from India	Give it real management abroad or accept Indian residence

Section 6(10) works the same for UK, Singapore and UAE companies. The treaty result differs, as the treaty section below shows. If you have not yet chosen a structure, compare our guide on US LLC vs India Private Limited for market entry.

How is POEM different from a permanent establishment?

POEM decides residence, so it reaches all the company's income worldwide. A permanent establishment (PE) is a source rule, so it reaches only the profits attributable to activity in India. A company can have a PE in India without POEM in India. Paragraph 9 of Circular 6 says a PE alone does not create POEM.

Point	Permanent establishment	Place of effective management
Question	Does the foreign company do enough business in India to be taxed on that business?	Is the foreign company itself resident in India?
Legal basis	Treaty article on PE; business connection in section 9 of the Income Tax Act, 2025	Section 6(10) of the Income Tax Act, 2025
Income taxed in India	Profits attributable to the PE	Worldwide income, under section 5(1)
Typical trigger	Office, staff or dependent agent in India	Key decisions made in India
Turnover relief	None	Circular 8 of 2017, INR 50 crore or less
Status of the company	Non resident	Resident, but still a foreign company

Both risks often sit in the same founder set up. Our guide on how to avoid permanent establishment risk in India covers the PE side.

What is the consequence of POEM in India?

The company becomes resident in India for that tax year. Section 5(1) then brings its worldwide income into Indian tax. It stays a foreign company, so it pays the foreign company rate of 35 percent plus surcharge and cess. It must file an Indian return and pay advance tax.

Notification No. 29/2018 of 22 Jun 2018 sets out how the 1961 Act applied to such a company. Paragraph E says the company "shall continue to be treated as a foreign company even if it is said to be resident in India". Provisions for a foreign company still apply. Provisions specific to non residents do not. Provisions specific to residents do.

Area	Result under Notification No. 29/2018 and the Act
Income taxed in India	Worldwide income of the tax year, section 5(1)
Tax rate	Foreign company rate, paragraph F: 35% plus surcharge (2% above INR 1 crore, 5% above INR 10 crore) and 4% cess
Concessional company rate	Not available. Section 200 (old 115BAA) is for domestic companies
Depreciation	Opening written down value taken from the foreign tax records, or rebuilt as if foreign depreciation rules had applied, paragraph A
Losses and unabsorbed depreciation	Taken year by year from the foreign tax records or books, and set off "only against such income of the foreign company which have become chargeable to tax in India", paragraph A
Accounting year	A company with a non March year end prepares accounts for the Indian tax year, paragraph A
TDS on payments it receives	Where two Chapter XVII-B rules apply, the foreign company rule alone applies. Compliance as a foreign company is "sufficient compliance", paragraph A(x) and (xi)
Transactions with others	Not altered "only on the ground" that the company became resident, paragraph D
Foreign tax credit	Relief under the treaty and unilateral relief provisions, paragraph A. Form 44 under rule 76 of the Income Tax Rules, 2026 now carries the claim
Income already taxable in India	The adaptations do not apply to income India would tax anyway, paragraph B

On top of Indian tax, the home country usually taxes the same company too. The double tax is the real cost. Relief depends on the treaty, covered in the next section but one.

Indian residence also brings Indian compliance. The company needs a PAN, an Indian return under section 263 and advance tax instalments under section 408. Interest under sections 424 and 425 follows if advance tax falls short. Our guide to corporate tax rates in India for foreign companies has the rate tables.

How does section 220 change the first year computation?

Section 220 of the Income Tax Act, 2025 is the successor to section 115JH of the Income Tax Act, 1961. The Income Tax Department's section navigator maps section 115JH, "Foreign company said to be resident in India", to section 220. Section 115JH dealt with a foreign company that becomes resident in India for the first time. It let the Central Government notify exceptions, modifications and adaptations to the Act.

The Finance Act, 2016 inserted section 115JH from 1 Apr 2017. The only notification on the subject, No. 29/2018, was issued under it. So we set out the rules below as section 115JH states them. Read the text of section 220 on the Income Tax Department site before you quote one of its sub sections in a filing.

Section 115JH(1) applied where a foreign company "is said to be resident in India in any previous year". The company must not have been resident in any earlier year. It covered five areas: computation of total income, unabsorbed depreciation, losses, collection and recovery, and tax avoidance rules. Section 115JH(3) required every notification to go before Parliament.

Two practical points follow from section 115JH.

1. The adaptations follow the company into later years. An assessment may make the finding. The proviso to section 115JH(1) then extended the adaptations to each later year in which the company was resident. That later year had to end on or before the date the assessment was completed. Paragraph C of the notification carries the closing values of one year into the next.
2. Breaking a condition undoes the benefit. Section 115JH(2) treated a benefit as wrongly allowed if the company later failed a notified condition. The Assessing Officer could then recompute income.

The only notification we know of is No. 29/2018 under section 115JH. We found none under section 220 up to 2 Oct 2026. On our reading, section 536 keeps No. 29/2018 in force to the extent it is consistent with the new Act.

How do tax treaties treat a company resident in both countries?

A company resident in India under POEM is usually also resident in its home country. Article 4 of each treaty decides what happens next. Some treaties pick the country of POEM. Some, after the Multilateral Instrument (MLI), leave it to the two tax authorities. The US treaty takes the company outside most of the treaty.

Treaty	Article for a dual resident company	Rule	Effect for a company run from India
India US	4(3)	Company is "outside the scope" of the treaty except Articles 10(2), 26, 27, 28 and 30	Loses treaty caps on interest, royalties and fees and PE protection
India UK	4(3) as modified by MLI Article 4(1)	Competent authorities "shall endeavour to determine by mutual agreement" having regard to POEM, place of incorporation and other factors	No treaty relief until they agree, except as they agree
India UAE	4(4)	Resident where its POEM is situated; no MLI change shown in the synthesised text	Treaty also treats it as Indian if POEM is in India
India Singapore	4(3)	Resident where its POEM is situated	Treaty also treats it as Indian if POEM is in India

Sources: India US convention (IRS text); synthesised texts of the India UK, India UAE and India Singapore treaties on incometaxindia.gov.in.

The US result is the harshest. A Delaware company run from India is resident in both countries and gets almost no treaty protection. Our guides to the India US DTAA, the India UK DTAA and the India Singapore DTAA cover each treaty in depth.

Who decides POEM, and what is the approval process?

The Assessing Officer raises POEM, but cannot decide it alone. Paragraph 11 of Circular 6 requires the officer to get prior approval from the Principal Commissioner or Commissioner before starting proceedings. A final finding needs approval from a collegium of three Principal Commissioners or Commissioners, which must hear the company.

Step	Who	What happens
1	Assessing Officer	Forms a view that POEM may be in India
2	Principal Commissioner or Commissioner	Gives prior approval to start POEM proceedings
3	Assessing Officer	Gathers facts on board meetings, decision makers, head office, staff and payroll
4	Collegium of three Principal Commissioners or Commissioners	Constituted by the Principal Chief Commissioner; gives the company "an opportunity of being heard"
5	Collegium	Directs the officer before the officer holds that POEM is in India
6	Company	Contests the assessment through the normal appeal route

Source: CBDT Circular No. 6 of 2017, paragraphs 11 and 11.1.

These steps come from the circular, not from section 6. They protect a company only if it has the records to win the hearing.

Which records prove POEM is outside India?

Records made at the time of each decision prove POEM outside India far better than a letter written after a notice. The officer tests the whole year and looks at who decided and where. So the evidence must show the place, the people and the decision for each key matter.

Record	What it should show	Who keeps it
Board minutes	Venue, directors present and where each sat, the decision and the reasons	Company secretary of the foreign company
Board packs	Papers sent before the meeting, so the board decided on information	Finance team abroad
Travel records	Founders and directors physically outside India on board dates	Each director
Delegation of authority	Who approves contracts, hires and spend, and up to what limit	Board
Circular resolutions	Who proposed, who approved and where each signatory was	Company secretary
Head office evidence	Lease, senior staff locations, where management meets	Finance team abroad
Active business test workings	Three year averages of passive income, assets, employees and payroll	Tax adviser
Turnover check	Turnover or gross receipts against INR 50 crore, with the exchange rate used	Tax adviser

We prepare the active business test workings each year after the accounting year closes. That is cheaper than rebuilding three years of data after a notice arrives.

What changed in 2026

The Income Tax Act, 2025 came into force on 1 Apr 2026 and moved the POEM rules to new sections. The test itself did not change. The CBDT has not issued new POEM guidelines, and the INR 50 crore threshold stays where Circular 8 of 2017 set it.

Item	Before 1 Apr 2026	From 1 Apr 2026	Instrument
Residence of a company	Section 6(3), Income Tax Act, 1961	Section 6(10), Income Tax Act, 2025	Act 30 of 2025, in force 1 Apr 2026
Period	Previous year and assessment year	Tax year	Section 3, Income Tax Act, 2025
First year adaptations for a foreign company	Section 115JH	Section 220	Income Tax Act, 2025; official section navigator
Circulars 6, 8 and 25 of 2017	In force	Continue where consistent	Section 536(2)(j); CBDT transition FAQ Q1.20
Notification No. 29/2018	In force under section 115JH	Continues where consistent, on our reading	Section 536
Foreign tax credit form	Form 67, rule 128 of the 1962 Rules	Form 44, rule 76 of the 2026 Rules	Income Tax Rules, 2026
Treaty claim form	Form 10F	Form 41, section 159(8)	Income Tax Rules, 2026
Withholding on payments to non residents	Section 195	Section 393(2), Table serial 17	Income Tax Act, 2025
Turnover threshold	INR 50 crore	INR 50 crore, unchanged	Circular 8 of 2017

Our guide to Income Tax Act, 2025 changes for foreign owned companies has the wider section map.

Worked example

A Delaware company whose founders moved to Bengaluru

Northwind Inc. is a hypothetical Delaware company. Its two founders moved to Bengaluru in 2025. Its accounting year is the calendar year. For Indian tax year 2026-27, Circular 6 uses calendar 2026, 2025 and 2024.

Step 1 is turnover. Northwind's turnover for calendar 2026 is INR 84 crore. That is above INR 50 crore, so the guidelines apply.

Step 2 is the four conditions. The table shows each condition by year. Contractors in India who do employee work count as employees in India. The shares of Northwind's Indian subsidiary count as assets in India, on our reading.

Condition	2024	2025	2026	Three year average	Limit	Result
Passive income / total income (INR crore)	0.4 / 6.0 = 6.67%	0.6 / 8.0 = 7.50%	1.0 / 10.0 = 10.00%	8.06%	Not more than 50%	Pass
Assets in India / total assets (INR crore)	4.0 / 40 = 10.00%	7.0 / 50 = 14.00%	9.5 / 60 = 15.83%	13.28%	Less than 50%	Pass
Employees in India / total employees (average of start and end)	1 / 16 = 6.25%	5 / 25 = 20.00%	10 / 35 = 28.57%	18.27%	Less than 50%	Pass
India payroll / total payroll (INR crore)	1 / 15 = 6.67%	5 / 22 = 22.73%	9 / 30 = 30.00%	19.80%	Less than 50%	Pass

The employee figures come from head counts at the start and end of each year. In 2026, Northwind started with 30 people (8 in India) and ended with 40 (12 in India). The averages are 35 in total and 10 in India.

Circular 6 does not say whether to average the three yearly percentages or divide the three year totals. We run both. On passive income, the totals give 2.0 / 24.0 = 8.33 percent. Both methods pass here.

Step 3 is board meetings. Northwind passes, so the presumption applies if most board meetings are held outside India. The board met four times in tax year 2026-27. Three meetings were held in person in San Francisco during the founders' trips. One was by video, chaired from Bengaluru. The majority were outside India, so POEM is presumed outside India.

Step 4 is the standing aside check. The presumption fails if the board stands aside while people in India decide. Northwind's minutes record pricing, the fund raise and senior hires as board decisions. The US investor director voted on each. We would treat POEM as outside India for 2026-27.

The next year, when the test fails

In calendar 2027, Northwind moves its CTO and sales team to India. India payroll reaches INR 26 crore of INR 40 crore, which is 65 percent. The three year average becomes (22.73 + 30.00 + 65.00) / 3 = 39.24 percent. That still passes.

The employee test is closer. Assume India averages 30 of 45 people in 2027, which is 66.67 percent. The three year average becomes (20.00 + 28.57 + 66.67) / 3 = 38.41 percent. That passes too.

The averages lag the facts. Now assume 2028 looks like 2027 again. For tax year 2028-29, payroll averages (30.00 + 65.00 + 65.00) / 3 = 53.33 percent.

Northwind now fails the active business test, so the presumption is gone. The officer asks who decides and where. Both founders and the CTO decide from Bengaluru, so POEM is likely in India for 2028-29.

Now the tax cost. Assume Northwind's worldwide total income for tax year 2028-29 is INR 12 crore. It stays a foreign company under paragraph F of Notification No. 29/2018.

Line	Working	INR
Total income	Worldwide income	12,00,00,000
Income tax at 35%	12,00,00,000 × 35%	4,20,00,000
Surcharge at 5% (income above INR 10 crore)	4,20,00,000 × 5%	21,00,000
Tax plus surcharge	4,20,00,000 + 21,00,000	4,41,00,000
Health and Education Cess at 4%	4,41,00,000 × 4%	17,64,000
Indian tax before any foreign tax credit	4,41,00,000 + 17,64,000	4,58,64,000
Effective rate	4,58,64,000 / 12,00,00,000	38.22%

The US also taxes Northwind on the same income. Article 4(3) of the India US treaty puts a dual resident company outside most of the treaty. So the usual treaty route to credit does not work cleanly. We take a written opinion before relying on any credit in that case.

If Northwind's income were INR 8 crore instead, surcharge would be 2 percent. The effective rate would be 35 × 1.02 × 1.04 = 37.128 percent.

A small company under the threshold

Kestrel Ltd is a hypothetical UK company run by two directors who live in Pune. Its turnover is INR 46 crore in the financial year. Circular 8 of 2017 keeps the POEM guidelines away for that year. Next year its turnover reaches INR 58 crore. The guidelines then apply, and the three year averages include the year it was under the threshold. We start the decision record in the small year, so the larger year has evidence behind it.

Common mistakes

1. Treating POEM as a PE question. Fix: test residence under section 6(10) separately. A PE taxes Indian profits. POEM taxes worldwide income.
2. Assuming the INR 50 crore threshold is in the Act. Fix: treat Circular 8 as relief the department follows. Check turnover every financial year, not once.
3. Counting only the payroll. Fix: count Indian contractors who do employee work. Circular 6 includes "persons, who though not employed directly by the company, perform tasks similar to those performed by the employees".
4. Using one year's data. Fix: average the tax year and the two years before it, as paragraph 7.2 requires.
5. Board meetings by video from India. Fix: hold most meetings outside India with the deciding directors physically there. Record each director's location in the minutes.
6. Rubber stamp boards. Fix: put real papers before the board and minute the debate. A board that only ratifies founder decisions is "standing aside" under paragraph 7.1.
7. Ignoring the holding company. Fix: a company abroad that only holds Indian shares fails the passive income test. Give it real management outside India or plan for Indian residence.
8. Expecting the Indian tax rate to fall. Fix: budget for the foreign company rate of 35 percent plus surcharge and cess. Paragraph F of Notification No. 29/2018 keeps it.
9. Assuming the treaty will rescue the company. Fix: read Article 4 of the specific treaty. The US treaty gives a dual resident company almost no relief.
10. Rebuilding evidence after a notice. Fix: prepare the active business workings and the turnover check every year.

Checklist for keeping POEM outside India

1. Calculate the company's turnover or gross receipts for each financial year and compare it with INR 50 crore. Record the exchange rate used.
2. List every person who makes key management and commercial decisions, and where each lives.
3. Compute the four active business conditions for the tax year and the two years before it.
4. Count Indian contractors who do employee work as employees in India.
5. Move Indian staff and contractors into an Indian subsidiary where the employee or payroll test is close to 50 percent.
6. Fix a board calendar that holds the majority of meetings outside India.
7. Arrange for the deciding directors to attend those meetings in person outside India.
8. Send board papers in advance and minute the discussion, the decision and each director's location.
9. Write a delegation of authority that keeps strategic approvals with the board outside India.
10. Keep group policies general, so an Indian regional office does not take entity specific decisions.
11. Track the travel of founders and directors against board dates.
12. Review the treaty's Article 4 for the home country before a founder relocates to India.
13. Plan for Indian residence where the facts point there. That means a PAN, advance tax instalments under section 408, a return under section 263 and Form 44.
14. Repeat the review at every accounting year end, because residence is tested each year.

If you want us to run the active business test on your numbers, contact Krystal7 with three years of accounts and your board minutes.

Frequently Asked Questions

Is POEM the same as the place of incorporation?+

No. Place of incorporation decides whether a company is an Indian company. POEM is where key management and commercial decisions are in substance made. A company formed in Delaware, London or Singapore can still be resident in India. Section 6(10)(a)(ii) of the Income Tax Act, 2025 applies if its POEM is in India.

Which section of the Income Tax Act, 2025 covers POEM?+

Section 6(10). Clause (a)(ii) makes a company resident if its place of effective management is in India in that tax year. Clause (b) defines the term. It replaces section 6(3) of the 1961 Act from 1 Apr 2026. The official section navigator maps section 115JH, the first year computation rule, to section 220.

Are the 2017 POEM circulars still valid under the new Act?+

Yes, on the department's own guidance. Section 536(2)(j) of the Income Tax Act, 2025 keeps 1961 Act circulars and notifications alive unless they conflict with the new Act. The CBDT transition FAQ Q1.20 says so. Circulars 6, 8 and 25 of 2017 and Notification No. 29/2018 continue to guide POEM.

Does one board meeting in India make a foreign company resident?+

No. Circular 6 of 2017 tests POEM over the whole tax year and says no single factor decides it. For a company in active business outside India, the presumption needs only a majority of board meetings outside India. The circular's own example presumed POEM outside India with two of five meetings in India.

Does a founder moving to India make the company resident?+

Not by that fact alone. Paragraph 9 of Circular 6 says directors living in India do not, by themselves, put POEM in India. Risk arises when the founders who live in India are the people making the key decisions, and the board abroad only ratifies them. The founder's own residence is a separate question under section 6(2).

Do video board meetings count as held outside India?+

The circular does not answer this directly. Paragraph 8.2(d) says technology makes physical presence less relevant and the usual residence of decision makers becomes relevant. So a meeting chaired from Bengaluru with Indian based directors deciding is weak evidence. We arrange for the deciding directors to meet in person outside India.

Is the INR 50 crore threshold based on Indian turnover or worldwide turnover?+

Circular 8 of 2017 refers to the company's turnover or gross receipts in a financial year. It does not limit this to Indian turnover. We read it as the foreign company's total turnover or gross receipts. Test it every financial year, because one year above the line brings the guidelines back.

What tax rate applies to a foreign company resident under POEM?+

The foreign company rate. Paragraph F of Notification No. 29/2018 keeps the rate that applies to a foreign company. The First Schedule to the Finance Act, 2026 sets it at 35 percent. Surcharge is 2 percent above INR 1 crore or 5 percent above INR 10 crore. Cess is 4 percent.

Do Indian customers still deduct TDS on payments to a company resident under POEM?+

Yes, under the foreign company rules. Paragraph A(x) of Notification No. 29/2018 says that where two Chapter XVII-B rules apply, the rule for the foreign company alone applies. Paragraph A(xi) treats compliance as a foreign company as sufficient. Under the 2025 Act, payments to a foreign company fall under section 393(2), Table serial 17.

Can a foreign company use its losses after becoming resident?+

Yes, but only against Indian taxable income. Notification No. 29/2018 takes losses and unabsorbed depreciation year by year from the foreign tax records or books. It allows set off "only against such income of the foreign company which have become chargeable to tax in India". The written down value of assets also comes from the foreign tax records.

How does a company resident under POEM claim credit for foreign tax?+

Through the relief provisions and Form 44 under rule 76 of the Income Tax Rules, 2026, which replaced Form 67. Form 44 is due within 12 months from the end of the tax year in which the foreign income was offered to tax. The return for that year must also be filed within the time in section 263(1) or 263(4). An accountant must verify it for a company. Treaty access depends on Article 4 of the treaty.

Does POEM apply to a US LLC?+

Section 6(10) applies to a company. If an LLC is treated as a company for Indian tax, the POEM test applies. If it is not, section 6(11) applies to "every other person", which is resident unless control and management are wholly outside India. That test is stricter, so classify the LLC before relying on POEM.

Does POEM affect the Indian subsidiary?+

No. The Indian subsidiary is an Indian company, so section 6(10)(a)(i) makes it resident in every case. POEM is about the foreign parent. The subsidiary still matters as evidence: if its directors make the parent's decisions, that points the parent's POEM to India.

Does an Indian regional headquarters create POEM for group companies?+

Not by applying group policy. Circular 25 of 2017 covers a regional office in India that applies general global policies. Policies on payroll, accounting, HR, IT, supply chain and routine banking qualify. Applying them is not, by itself, the board standing aside. Entity specific decisions taken in India are different. GAAR may apply to abusive use.

Can the Assessing Officer decide POEM without approval?+

No. Paragraph 11 of Circular 6 requires prior approval from the Principal Commissioner or Commissioner before POEM proceedings start. A finding that POEM is in India needs a collegium of three Principal Commissioners or Commissioners, which must give the company a hearing. These safeguards come from the circular.

Is a passive holding company abroad at higher risk?+

Yes. A company earning mainly dividends, interest or capital gains fails the passive income condition, so it gets no board meeting presumption. Example 5 of Circular 6 describes a holding company with only dividends and interest whose POEM was in India. Its active subsidiaries abroad were tested on their own facts.

What is the difference between POEM in Indian law and in a tax treaty?+

Section 6(10) uses POEM to decide Indian residence. Some treaties use POEM as a tie breaker for a company resident in both countries. Article 4(4) of the India UAE treaty is one. Others now use mutual agreement under MLI Article 4(1), such as the India UK treaty. The India US treaty has no tie breaker for companies.

Can a company be resident in India in one year and not the next?+

Yes. Residence is tested each tax year, and paragraph 10 of Circular 6 says POEM is determined "on year to year basis". The active business test uses a three year average, so a change in staffing may take a year or two to show. The first year rules of section 115JH, now mapped to section 220, apply in the first year of residence.

Sources

• Income Tax Department, Section 6 of the Income Tax Act, 2025 (residence; sub sections (10), (11) and (12)), read 2 Oct 2026, https://www.incometaxindia.gov.in/w/section-6-1
• Income Tax Department, Section 5 of the Income Tax Act, 2025 (scope of total income), read 2 Oct 2026, https://www.incometaxindia.gov.in/w/section-5-1
• Income Tax Department, Section 6 of the Income Tax Act, 1961 (sub section (3) and Explanation), read 2 Oct 2026, https://www.incometaxindia.gov.in/w/section-6-65
• Income Tax Department, Section 115JH of the Income Tax Act, 1961 (foreign company said to be resident in India), read 2 Oct 2026, https://www.incometaxindia.gov.in/w/section-115jh
• Income Tax Department, Section 220 of the Income Tax Act, 2025 (foreign company said to be resident in India), https://www.incometaxindia.gov.in/w/section-220-75
• Income Tax Department, Section mapping navigator, Income Tax Act, 1961 to Income Tax Bill, 2025 (maps section 115JH to section 220), read 2 Oct 2026, https://www.incometaxindia.gov.in/documents/20117/43138/new-income-tax-bill-2025-navigator.pdf/8df3eecc-8a0d-e28d-85c7-4db6310a52dd
• Central Board of Direct Taxes, Circular No. 6 of 2017, Guiding principles for determination of Place of Effective Management (POEM) of a company, 24 Jan 2017, read 2 Oct 2026, https://www.incometaxindia.gov.in/documents/20117/6507196/Circular06_2017.pdf/0d5048dc-3672-9707-7fe6-6fe6500ee2a4?t=1762868208360
• Central Board of Direct Taxes, Circular No. 25 of 2017, Clarification related to guidelines for establishing PoEM in India (also records Circular No. 8 of 2017 of 23 Feb 2017), 23 Oct 2017, read 2 Oct 2026, https://www.incometaxindia.gov.in/documents/d/guest/circular25_2017-pdf
• Income Tax Department, Provisions of Income tax law and FEMA useful for non residents (POEM, Circulars 6 and 8 of 2017), read 2 Oct 2026, https://www.incometaxindia.gov.in/w/provisions-of-income-tax-law-and-fema-useful-for-non-residents
• Press Information Bureau (Ministry of Finance), CBDT issues Guiding Principles for determination of Place of Effective Management (POEM) of a Company, 24 Jan 2017, read 2 Oct 2026, https://www.pib.gov.in/newsite/printrelease.aspx?relid=157616&reg=3&lang=2
• Central Board of Direct Taxes, Notification No. 29/2018, S.O. 3039(E), exceptions, modifications and adaptations under section 115JH, 22 Jun 2018, read 2 Oct 2026, https://www.incometaxindia.gov.in/news/notification29_2018.pdf
• Central Board of Direct Taxes, FAQs on Interplay and Transition to the Income Tax Act, 2025 (Q1.20), read 2 Oct 2026, https://www.incometaxindia.gov.in/documents/81799/11848482/FAQs-on-Interplay-and-Transition.pdf/05f80c1a-073c-a5d7-fb6f-55509242be53?t=1774082865717
• Income Tax Department, First Schedule to the Finance Act, 2026 (rates and surcharge for a company other than a domestic company), read 2 Oct 2026, https://www.incometaxindia.gov.in/w/first-schedule-104
• Income Tax Department, Guidance note on Form 44 (rule 76, foreign tax credit), read 2 Oct 2026, https://www.incometaxindia.gov.in/documents/d/guest/fn-44
• Internal Revenue Service, Convention between the United States and India (Article 4), read 2 Oct 2026, https://www.irs.gov/pub/irs-trty/india.pdf
• Income Tax Department, Synthesised text of the India UK DTAA as modified by the MLI (Article 4), read 2 Oct 2026, https://www.incometaxindia.gov.in/w/uk-synthesised-text-1
• Income Tax Department, Synthesised text of the India UAE DTAA as modified by the MLI (Article 4), read 2 Oct 2026, https://www.incometaxindia.gov.in/w/uae-synthesised-text-1
• Income Tax Department, Synthesised text of the India Singapore DTAA as modified by the MLI (Article 4), https://www.incometaxindia.gov.in/w/singapore-synthesised-text-1