Section 60 Income Tax Act 2025: How Much Head Office Expenditure Can Non-Residents Deduct?
Section 60 restricts the deduction of overseas head office administrative expenses attributable to a non-resident's Indian business or profession. This guide explains the statutory ceiling, key definitions, calculation methods and documentation.
What does Section 60 provide?
Under Section 60(1), notwithstanding contrary provisions in Sections 26 to 54, a non-resident assessee may deduct head office expenditure incurred outside India to the extent attributable to business or profession in India, subject to the ceiling in Section 60(2).
The provision is relevant where a non-resident enterprise allocates executive or general administration expenses from its overseas head office to Indian operations. An allocation must be supported by facts and cannot exceed the statutory ceiling.
How is the deduction calculated?
The allowable deduction is limited to the qualifying head office expenditure attributable to Indian business or profession and the following ceiling:
- Positive or nil adjusted total income: an upper monetary limit of 5% of adjusted total income under Section 60(2)(b).
- Adjusted total income is a loss: an upper monetary limit of 5% of average adjusted total income under Section 60(2)(a).
Section 60 does not automatically permit deduction of 5% of income: actual qualifying expenditure and its connection with Indian operations must be established.
Definitions under Section 60(3)
Total income computed without giving effect to the Section 60 allowance, the allowance in Section 33(11), the deduction specified in Section 32(i)(A), the enumerated carried-forward losses under Sections 111(1), 112(1), 113(2) and 115(2), and Chapter VIII deductions. The statutory cross-references should be applied exactly as enacted for the relevant year.
Where the assessee was assessable in each of the preceding three tax years, the arithmetic average of adjusted total income for those years. If assessable in only two of those years, the average for those two years; if assessable in only one, the adjusted total income for that one year.
Executive and general administration expenditure incurred outside India. It includes expenditure relating to overseas business premises (rent, rates, taxes, repairs and insurance); compensation and benefits of employees or persons managing overseas offices; their travel; and other prescribed executive and general administration matters.
These are statutory categories. Direct project costs and other payments should not automatically be treated as head office expenditure without examining their actual character.
Illustrative deduction calculations
Example 1: Positive adjusted total income
A foreign enterprise has adjusted total income of Rs. 2,00,00,000 and qualifying overseas head office expenditure attributable to India of Rs. 18,00,000. Five percent of adjusted total income is Rs. 10,00,000. Deduction: Rs. 10,00,000, being the lower amount.
Example 2: Actual expenditure is lower
If adjusted total income is Rs. 2,00,00,000 but attributable qualifying expenditure is Rs. 6,00,000, the deduction is Rs. 6,00,000, not the full Rs. 10,00,000 ceiling.
Example 3: Adjusted total income is a loss
Assume current adjusted total income is a loss, qualifying attributable expenditure is Rs. 9,00,000 and the preceding three assessable tax years had adjusted total incomes of Rs. 60,00,000, Rs. 90,00,000 and Rs. 1,50,00,000. Average adjusted total income is Rs. 1,00,00,000; 5% is Rs. 5,00,000. Deduction: Rs. 5,00,000, subject to the actual statutory computation.
What records should a non-resident maintain?
- Head office expense ledgers and supporting invoices.
- Allocation methodology, cost-centre details and basis of attribution to Indian business or profession.
- Working papers for adjusted total income and, where relevant, preceding tax years' average adjusted total income.
- Evidence showing the nature of each expense as executive or general administration expenditure incurred outside India.
- Relevant Indian tax returns, accounts and permanent establishment records where applicable.
Separate transfer-pricing, treaty, withholding or other provisions may also be relevant depending on the facts. Section 60 itself is a deduction limitation and not a stand-alone rule for determining the existence of a permanent establishment.
Frequently asked questions
Is the deduction always 5% of Indian business income?
No. Five percent is the applicable upper monetary ceiling, not an automatic deduction. The actual qualifying attributable head office expenditure may be lower.
What happens when adjusted total income is a loss?
The ceiling is calculated with reference to 5% of average adjusted total income for the preceding assessable tax years, as defined in Section 60(3)(b).
Does Section 60 apply to resident Indian companies?
No. Its express application is to a non-resident assessee.
What is the corresponding provision in the 1961 Act?
Section 44C of the Income-tax Act, 1961 deals with the deduction of head office expenditure in the case of non-residents.
Official law and further reading
Read the current legislation and related guidance on the Income Tax Department's official portals. Check subsequent notifications and amendments for the relevant tax year.
Last reviewed: 10 November 2026. General legal information; application depends on facts and current statutory text.