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In a relief to small companies, the Income Tax Department has clarified that provisions of place of effective management (POEM) will not apply to firms with an annual turnover of up to ₹50 crore.
“It is clarified that existing provision …shall not apply to a company having turnover or gross receipts of ₹50 crore or less in a financial year,” said the Central Board of Direct Taxes in a circular.
The POEM rules aim to target companies that operate in India but have shell companies outside the country for tax purposes.
Using a set of criteria such as Active Business Outside India test, the guidelines will help the CBDT identify a resident company, even if it may be a subsidiary of a multinational firm or incorporated outside, and make it liable to pay tax.
Introduced under the Finance Act, 2015, the CBDT had in January this year issued final guidelines to determine the actual place of management of the company.
It had at the time said that such companies with a turnover of less than ₹50 crore would be exempt.
The rules are effective from April 1, 2016 and will apply from the assessment year 2017-18.
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