Section 220 Income Tax Act 2025: What If a Foreign Company Becomes Resident in India?
Section 220 provides a framework for applying specified transitional tax rules when a foreign company is treated as resident in India for the first time. It permits notified exceptions, modifications and adaptations to particular income-tax provisions, subject to compliance with notified conditions.
What does Section 220 of the Income-tax Act, 2025 provide?
Section 220 is titled "Foreign company said to be resident in India." It addresses the application of specified tax provisions where a foreign company is considered resident in India in a tax year although it was not resident in earlier tax years. Its operation is expressly subject to conditions notified by the Central Government.
The section does not independently establish a company's residence. The residence test must be considered under Section 6, including the relevant provisions concerning a company's place of effective management, where applicable. Section 220 then addresses the transitional tax consequences of a first-time residence determination.
Section 220(1): Which tax provisions can be adapted?
Where a foreign company becomes resident in India in a tax year after being non-resident in earlier tax years, the Central Government may notify conditions and provide exceptions, modifications or adaptations for the following five statutory areas:
| Clause | Matter covered | Practical significance |
|---|---|---|
| 220(1)(a) | Computation of total income | Rules for calculating taxable income during the transition |
| 220(1)(b) | Treatment of unabsorbed depreciation | How eligible depreciation balances are treated |
| 220(1)(c) | Set-off and carry-forward of losses | Whether and how losses may be adjusted or carried forward |
| 220(1)(d) | Collection and recovery | Tax payment and recovery processes |
| 220(1)(e) | Special provisions relating to avoidance of tax | Application of anti-avoidance provisions during the transition |
The statutory language authorises the treatment specified in a relevant notification; it does not grant an unconditional exemption from tax or an automatic right to carry forward all losses.
Section 220(2): What happens if residence is decided during assessment?
If a foreign company's Indian-resident status for a tax year is determined in assessment proceedings, Section 220(1) also applies to succeeding tax years ending on or before the date those assessment proceedings are completed. The scope is therefore linked to the timing of the assessment and the end dates of the succeeding tax years, not to an unrestricted period after the determination.
For example, if residence for an earlier tax year is established only after a later tax year has already ended, the later year may fall within Section 220(2), subject to the provision's conditions and the applicable notification.
Section 220(3): Can transitional relief be withdrawn?
Yes. Section 220(3) addresses a foreign company that has claimed and received a benefit, exemption or relief under Section 220(1) but subsequently fails to comply with a condition in the relevant notification.
- Deemed incorrect allowance: The benefit, exemption or relief is treated as wrongly allowed under Section 220(3)(a).
- Recomputation: Under Section 220(3)(b), the Assessing Officer may recompute the company's total income and amend the assessment as if the notified exceptions, modifications or adaptations had not applied.
- Rectification time limit: Section 220(3)(c) applies Section 287, so far as applicable, with the four-year period under Section 287(8) counted from the end of the tax year in which the failure to comply occurs.
Section 220(4): What oversight applies to notifications?
Every notification issued under Section 220 must be laid before each House of Parliament. This is a statutory requirement concerning notifications made under the section.
Relevant statutory definitions and concepts
A company that is not a domestic company, subject to the definition of "company" and "domestic company" under the Income-tax Act, 2025. Its place of incorporation alone does not necessarily determine its residence for Indian income-tax purposes.
Residence is determined under Section 6 of the Income-tax Act, 2025. For foreign companies, the relevant statutory residence rules, including place of effective management where applicable, must be examined separately from Section 220.
Section 3 defines the term "tax year" for purposes of the 2025 Act. The relevant tax year is central to deciding whether the company is resident for the first time and whether a succeeding year falls within Section 220(2).
Depreciation that could not be fully given effect to under the applicable computation provisions. Section 220 permits notified adaptations to its treatment; it does not itself quantify or automatically allow a particular balance.
For Section 220, the relevant Central Government notification specifies the conditions and any exceptions, modifications or adaptations. Eligibility must be verified against the notification actually applicable to the company and tax year.
Practical illustration: First-time Indian residence
Assume ABC Global Ltd. is incorporated outside India and was non-resident in earlier tax years. For a later tax year, it is determined to be resident in India under Section 6. ABC Global Ltd. has unabsorbed depreciation and business losses from earlier years.
- Step 1: Establish the company's residence under Section 6 for the relevant tax year.
- Step 2: Identify any Central Government notification applicable under Section 220(1).
- Step 3: Check whether the notification modifies the rules for depreciation, losses, income computation, collection or anti-avoidance.
- Step 4: Determine whether Section 220(2) extends the treatment to succeeding tax years ending before completion of the assessment proceedings.
- Step 5: Monitor ongoing conditions, because failure may trigger withdrawal and recomputation under Section 220(3).
Illustration only: No specific tax saving or carry-forward entitlement can be calculated without the company's facts, applicable notification and supporting tax records.
Compliance checklist for foreign companies
- Review the place of effective management and other relevant residence factors.
- Identify the first tax year in which Indian residence is established.
- Review applicable Central Government notifications and conditions.
- Reconcile income computation, depreciation and loss schedules.
- Consider collection, recovery and anti-avoidance implications.
- Maintain documentation to demonstrate continued compliance.
- Assess the potential effect of Section 220(3) before claiming transitional relief.
Frequently asked questions
Does Section 220 make every foreign company resident in India?
No. Residence is determined under Section 6. Section 220 concerns the application of specified tax rules once a foreign company is treated as resident in India after being non-resident in earlier years.
Does Section 220 automatically exempt foreign companies from Indian tax?
No. It provides for notified exceptions, modifications and adaptations subject to conditions. Any available relief must be established from the applicable notification.
Can a company carry forward all foreign losses after becoming Indian resident?
Not automatically. Section 220(1)(c) permits notified treatment of set-off and carry-forward of losses. The actual entitlement depends on the governing provisions and notification.
What happens when a company breaches a notification condition?
Under Section 220(3), previously allowed benefits may be treated as wrongly allowed, and the Assessing Officer may recompute income and amend the assessment, subject to the applicable statutory procedure.
Is Section 220 of the 2025 Act the same as Section 220 of the 1961 Act?
No. Section 220 of the Income-tax Act, 2025 deals with foreign companies becoming resident in India. Section 220 of the Income-tax Act, 1961 addressed tax demand payments and defaults. The provisions have different subject matter.
Which earlier provision corresponds to Section 220 of the 2025 Act?
The comparable subject matter was covered by Section 115JH of the Income-tax Act, 1961. The 2025 Act and applicable transitional provisions should be consulted for the relevant tax year.
Official statutory references
Last reviewed: 11 November 2026. This article provides general legal and tax information and should be read with the relevant statutory notifications.