Permanent Establishment, the Offshore/Onshore Split, Withholding Tax, Section 44BBB Presumptive Taxation and Works Contract GST

This article is Part 2 of a four-part series on EPC contracts in India.

• • Part 1: Entity Structure and Mobilisation

• Part 2: Tax Architecture (this article)

• Part 3: Customs and the Project Imports Scheme

• Part 4: Commercial Risk

In brief

The tax outcome of an Indian EPC project is decided by what actually happens, not by what the contract says. Three permanent establishment types arise: fixed-place, construction and service. Offshore supply escapes Indian tax only where title passes offshore, payment is received offshore, and the permanent establishment is uninvolved. Section 195 withholding tracks taxability and carries no threshold. Section 44BBB presumptive taxation is narrow and often adverse. An EPC works contract carries 18% IGST that the project owner usually cannot recover.

This is Part 2 of a four-part analysis of EPC contracts in India. Part 1 covered entity structure and mobilisation. This Part covers the tax architecture: permanent establishment, the offshore/onshore split, withholding tax, Section 44BBB presumptive taxation and works contract GST. Part 3 covers customs and the Project Imports Scheme. Part 4 covers commercial risk.

Topics You Can Jump To:

Section I — Mobilising for an EPC Project in India

Which entity structure should a foreign EPC contractor use in India? 

How is a Project Office established, and what are its constraints? 

Branch Office, Liaison Office, or Indian subsidiary — which is appropriate? 

What goes wrong in an unincorporated consortium or JV? 

Why must the PE analysis start at contract award? 

Section II — Tax Architecture for the Foreign EPC Contractor

When does a foreign EPC contractor have a permanent establishment in India? 

How does the offshore/onshore split work, and what destroys it? 

What withholding tax applies to payments to a foreign EPC contractor? 

How is Section 44BBB presumptive taxation actually used? 

How is GST applied to an EPC contract in India? 

Checklist — Mobilisation and Tax

Pre-award}

Mobilisation

Execution

Completion and closure

Frequently Asked Questions

About the Author

Services We Provide

 

Section II: Tax Architecture for the Foreign EPC Contractor

The tax consequences of an Indian EPC project are determined by what actually happens, not by what the contract says. Where does title pass. Where are personnel physically present. What does the project office actually do. A contractor who has priced, mobilised and delivered correctly can still find its effective Indian rate materially above model, because the permanent establishment analysis was not integrated into the contract at the outset, or the offshore/onshore allocation was not documented well enough to survive challenge.

When does a foreign EPC contractor have a permanent establishment in India?

Three permanent establishment types arise on EPC projects: fixed-place PE under Article 5(1) (the project office); construction PE under Article 5(3) (site or supervisory activity beyond the treaty threshold); and service PE (personnel furnishing services beyond 90 to 183 days). A service PE can arise with no registered office and no Indian bank account at all.

Fixed-place PE under Article 5(1) arises from a fixed place of business through which the enterprise carries on business. The project office is the paradigm. What matters is not registration but whether the space is at the enterprise’s disposal and whether business is conducted from it.

Construction PE under Article 5(3) arises where a building site, construction or installation project, or supervisory activity in connection with it, continues beyond the treaty threshold. Per site, not aggregated. Supervisory activity counts. The India-UK 10% value trigger operates independently of duration.

Service PE arises where the enterprise furnishes services in India through personnel beyond a treaty threshold, typically 90 to 183 days. Multiple people making short visits aggregate. The Delhi High Court’s December 2025 ruling in CIT v. Clifford Chance Pte Ltd. confirmed that purely remote or virtual service delivery does not create a service permanent establishment under the India-Singapore treaty: physical presence in India remains a precondition.

The trap. A service permanent establishment can exist with no Project Office, no Branch Office and no Indian bank account. A foreign entity that sends a commissioning engineer to an Indian plant for four months has a permanent establishment in law and no Indian infrastructure through which to manage it. This scenario is addressed below under ‘Three payment situations’.

Attribution, the PE does not determine what is taxed

The permanent establishment establishes India’s right to tax. What is actually taxed is the profit attributable to it, which is a separate question. The foundational authority is Ishikawajima-Harima Heavy Industries v. DIT, (2007) 288 ITR 408 (SC): even where a permanent establishment exists, only income with sufficient territorial nexus to India is attributable to it. Establishing a Project Office does not bring the offshore equipment supply into the Indian tax net. The permanent establishment and the offshore supply are assessed separately.

A further consequence flows from DIT v. Morgan Stanley & Co. Inc., (2007) 292 ITR 416 (SC): where the associated enterprise constituting the permanent establishment has been remunerated on an arm’s length basis taking into account all risk-taking functions performed, no further profits need be attributed to it. The principle is conditional, not automatic. It applies only where the transfer pricing analysis is exhaustive of all functions and risks. Where the Indian entity is compensated for some of its functions but not others, or where the documentation does not reflect operational reality, the revenue retains the right to attribute further profit for what the analysis did not capture. The transfer pricing position and the permanent establishment attribution are not sequential exercises. They are one structure, and they must be designed together from the outset. See the firm’s detailed analysis of transfer pricing and permanent establishment disputes on Mondaq.

The Tiger Global signal

Authority for Advance Rulings v. Tiger Global International II Holdings, 2026 INSC 60 (15 January 2026) is a capital gains and GAAR case, not an EPC or permanent establishment case. Its direct legal effect here is limited. Its signal is not. The Court held that India can tax what is economically Indian even where it is legally structured as offshore, and that GAAR applies where an arrangement lacks commercial substance regardless of how well it is documented.

Applied to EPC: an offshore/onshore split that is contractually immaculate but operationally hollow, where the offshore entity has no genuine functions, assets or decision-making authority corresponding to the income attributed to it, is now materially more exposed. The split remains sound where it is real. Tiger Global is a warning about paper structures, not a dismantling of legitimate planning.

How does the offshore/onshore split work, and what destroys it?

Offshore supply escapes Indian tax where three conditions hold: title passes outside India, payment is received offshore in foreign currency, and the Indian permanent establishment played no role in the supply. A cross-fall breach clause, a single lump-sum price, or PE involvement in procurement will each defeat the split.

Ishikawajima-Harima held that a turnkey contract, though commercially integrated, is not an indivisible taxable unit: the principle of apportionment applies and each component is assessed on its own territorial nexus. Subsequent authority is consistent, DIT v. LG Cable Ltd., 237 CTR 438 (Delhi HC) (offshore supply not taxable even where interlinked with onshore performance); DIT v. Nokia Networks OY, (2012) 253 CTR 417 (Delhi HC) (supply must be segregated from installation even in a composite contract); and the AAR in Technip France SA (title passing outside India protects offshore supply).

The three conditions

• Title must pass outside India. FOB port of export, ex-works, or CIF with delivery effected outside Indian territorial waters. Title conditions that defer passage until commissioning or performance testing in India destroy the protection, however the clause is labelled.
• Payment must be received outside India in foreign currency. Routing offshore supply consideration through the Project Office’s INR account, or denominating it in rupees, compromises the territorial separation.
• The permanent establishment must have had no role in the offshore supply. If Project Office personnel are involved in procurement decisions, supplier negotiation, or offshore logistics, the revenue will contend, with a reasonable prospect of success, that the permanent establishment participated in generating the supply income, bringing it within Article 7.

What the split does not protect

Offshore services are a different matter. The Finance Act 2007 (which was further amended in 2010) inserted an Explanation to Section 9 removing the territorial nexus requirement for fees for technical services. FTS is now taxable in India on a source basis whether or not the services were rendered in India, provided they are utilised in India. The qualifier from Ishikawajima, that offshore services must be both rendered and utilised in India, no longer holds for FTS as a matter of domestic law. Engineering design prepared offshore but functionally bound into Indian project execution, reviewed and approved by the Indian project owner, will generally be characterised as FTS taxable in India.

The composite contract and the cross-fall breach clause

A single lump-sum price with no allocation invites the revenue to treat the entire contract value as India-source. Courts have permitted dissection even of composite contracts where the parties’ intention to treat the components separately can be established from the terms, the pricing and the conduct. But the absence of separate consideration weakens the position badly.

The cross-fall breach clause is the sharper problem. It is standard in FIDIC-derived EPC contracts and provides that non-performance of any part is a breach of the whole. The BCAJ analysis of Dongfang Electric confirms that its presence makes a court materially more likely to treat the contract as integrated: the clause is evidence that the offshore and onshore components are commercially interdependent, not merely legally connected. The Chennai ITAT’s 2023 decision in Durr Systems AG held three separately executed contracts for supply, installation and supervision to be in substance one composite contract. The decision runs against the weight of High Court authority and is open to challenge, but it shows where the revenue is pushing.

The drafting consequence is uncomfortable but unavoidable: a cross-fall breach clause is commercially rational for the project owner and analytically corrosive to the contractor’s tax position. Where the owner insists on single-point recourse, that objective should be delivered through a wrap-around agreement rather than through a cross-fall clause in the split contracts themselves. Pinsent Masons’ analysis of split EPC structures identifies the central constraint: the wrap-around agreement must coordinate without itself becoming evidence of a single integrated arrangement. It should carry no monetary consideration and should be framed as a parent company guarantee or performance undertaking, not as an operative contract generating an independent income flow.

What withholding tax applies to payments to a foreign EPC contractor?

Section 195 requires withholding on every payment to a non-resident that is chargeable to tax in India, with no threshold. The rate depends on characterisation: 35% base plus surcharge and cess for permanent establishment business profits; 20% under Section 115A for fees for technical services and royalties not connected with a PE, doubled from 10% by the Finance Act 2023.

Section 195 requires any person paying a sum to a non-resident to deduct tax at source at the time of credit or payment, whichever is earlier, where the sum is chargeable to tax in India. There is no threshold. The obligation sits on the Indian payer, but the consequence lands on the foreign contractor, because withholding determines net cash flow across the project. The threshold question, settled by the Supreme Court in Transmission Corporation of AP Ltd v. CIT, (1999) 239 ITR 587 (SC), is whether the sum has a taxable character in India in the hands of the non-resident. If it does not, as with genuine offshore supply under Ishikawajima, no withholding obligation arises. The withholding analysis tracks the taxability analysis exactly.

Three payment situations, three different compliance outcomes

Situation 1, payment into the permanent establishment’s Indian INR account. Section 195 TDS applies at credit or payment if the sum is chargeable. But no outward remittance occurs at this point. Form 15CA (Form 145 under the Income Tax Act 2025, from 1 April 2026) is triggered by the outward remittance, not by the domestic INR credit. The contractor holds gross funds in India and manages its position before repatriation. The compliance burden concentrates at closure.

Situation 2, direct payment to a foreign account. Common for the offshore supply component. Every milestone payment is an outward remittance: Section 195 TDS must be deducted and Form 15CA filed before the authorised dealer will process the transfer. Where the payment exceeds ₹5 lakh, Form 15CB (Form 146 under the 2025 Act), a chartered accountant’s certificate on nature and taxability, is also required. A Section 197 lower withholding certificate is close to essential here; without it the payer withholds at the full rate on every milestone.

Situation 3, service permanent establishment with no Indian account. The most awkward and the most common in practice. A foreign entity sends a commissioning engineer to an Indian plant. The engineer stays beyond the treaty service PE threshold. A permanent establishment exists as a matter of law. But there is no Project Office, no Branch Office, no Indian bank account. The Indian company pays the invoice directly to the foreign entity’s offshore account. Every payment is an outward remittance attracting Section 195 and Form 15CA.

The foreign entity has no Indian infrastructure through which to manage its tax position progressively. Its entire engagement with the Indian tax system is whatever the Indian payer does at the moment of withholding. If the payer over-withholds by applying Section 115A at 20% instead of the treaty rate, the foreign entity must obtain a PAN, file an Indian return and claim a refund, for a four-month commissioning job. If the payer under-withholds without adequate documentation, it is an assessee-in-default with interest under Section 201(1A). The clean answer is a Section 197 certificate obtained before the first payment, which almost nobody does on short commissioning engagements.

The rates, and what the Finance Act 2023 changed

Permanent establishment business profits: the foreign company rate. 35% base, reduced from 40% by the Finance (No. 2) Act 2024 with effect from FY 2024-25, plus surcharge of 2% (total income ₹1 to 10 crore) or 5% (above ₹10 crore), plus health and education cess of 4%.

FTS and royalties connected with a permanent establishment: Section 44DA, net basis assessment, deductions allowed.

FTS and royalties not connected with a permanent establishment: Section 115A. Before 1 April 2023 the rate was 10% plus surcharge and cess, roughly 10.92% effective for a foreign company. Most non-residents simply accepted it, because Section 115A(5) exempted them from filing an Indian return where royalty or FTS was their only India income and tax had been withheld at the Section 115A rate. Treaty rates were around 10% anyway. There was no incentive to claim relief.

The Finance Act 2023 doubled the Section 115A rate from 10% to 20%, effective 1 April 2023, an amendment introduced while the Finance Bill was passing through the Lok Sabha, not announced in the February 2023 Budget. The effective rate for a foreign company moved from approximately 10.92% to approximately 21.84%.

The second-order effect is the one that catches people. Treaty rates of 10% to 15% are now materially below the domestic rate, so non-residents have to claim treaty relief, which means obtaining a PAN, filing Form 10F electronically, furnishing a Tax Residency Certificate and filing an Indian return. The return-filing exemption under Section 115A(5) survives only for a non-resident who accepts the full 20% domestic rate. Indian payers who apply a treaty rate without collecting adequate documentation face assessee-in-default consequences if the rate is later challenged. The rate change did not just cost money; it imported a compliance obligation into transactions that previously had none. Confirmed by International Tax Review.

The make-available clause

Several Indian treaties, the USA, UK and Canada among them, condition FTS treaty treatment on the services ‘making available’ technical knowledge or skill such that the recipient can apply it independently without further assistance. Ongoing site supervision or commissioning support typically does not make anything available: the Indian owner uses the service without acquiring the capability. Where the condition fails, the payment does not qualify as treaty FTS, and the consequence is favourable, because it may instead be business profits, which are not taxable in India absent a permanent establishment under Article 7. The position must be claimed proactively through an Indian return; it is not self-executing.

Section 197, the lower withholding certificate

Section 197 (Rule 28AA, Form 13) allows the contractor to apply to the Assessing Officer for a certificate at a lower or nil rate. Two limits define its usefulness. It is provisional, it does not bind the Assessing Officer in the regular assessment. And it covers only payments made after the date of issue. A contractor expecting a large mobilisation advance must apply before mobilisation, not after the advance has been received net of full withholding.

How is Section 44BBB presumptive taxation actually used?

Section 44BBB deems 10% of gross receipts as profit, giving an effective rate of about 3.81%. It applies only to a foreign company, only to civil construction or erection, testing and commissioning, and only on a Central Government-approved turnkey power project. It is adverse where the actual onshore margin is below 10%, which is common.

Section 44BBB, restated as Section 61, Sl. No. 4 of the Income Tax Act 2025 from Tax Year 2026-27, is narrower than practitioners assume. Three conditions must all be met.

• Foreign company only. Non-resident individuals, partnerships and Indian subsidiaries are excluded.
• Civil construction, or erection, testing or commissioning of plant or machinery. Equipment supply, engineering design, procurement services and offshore services fall entirely outside. This is not a general EPC provision.
• A turnkey power project approved by the Central Government. Roads, ports, railways, water infrastructure, refineries, petrochemical and process plants, all outside, whatever their scale.

Where all three are met, 10% of the aggregate amount paid or payable, whether in India or abroad, for the qualifying activities is deemed profit. Applied against the foreign company rate (35% base, 5% surcharge above ₹10 crore, 4% cess), the effective tax is approximately 3.81% of gross receipts. Before the Finance (No. 2) Act 2024 reduced the base rate from 40% to 35%, it was approximately 4.37%.

Whether it helps depends entirely on the actual margin. If the contractor’s real net margin on the qualifying Indian activities exceeds 10%, the scheme is beneficial. If it is below 10%, and onshore construction and commissioning margins on Indian power EPC are frequently in the 6% to 8% range after mobilisation cost and overrun, Section 44BBB produces a higher liability than actual-profits taxation. The election is year-specific and cannot be revised after the return is filed. It must therefore be modelled before filing, not after.

Section 61(4) of the 2025 Act, the change nobody has priced

This is the material development for Tax Year 2026-27 onwards. Under the 1961 Act as amended by the Finance Act 2023, the restriction on the presumptive scheme was confined to unabsorbed depreciation and brought forward losses. Section 61(4) of the Income Tax Act 2025 is drafted far more widely:

“Any loss, allowance or deduction allowable under the provisions of this Act shall not be allowed against the income computed in the manner specified in sub-section (2).”

That is a categorical bar. Not merely brought forward losses and unabsorbed depreciation, but any loss, allowance or deduction of any kind, against presumptive income, from Tax Year 2026-27. Current year expenses. Head office expenditure under Section 44C, which permitted a deduction of up to 5% of adjusted total income for head office costs attributable to the Indian business. Everything. This is a substantive policy change, not a restatement of the 1961 Act position, and it shifts the calculus decisively towards the actual-profits route under Section 61(3) for any contractor with real deductible expenditure and a sub-10% margin.

How is GST applied to an EPC contract in India?

An EPC contract for construction of immovable property is a works contract under Section 2(119) of the CGST Act, deemed a supply of services under Schedule II Entry 6(a), taxed at 18% IGST on the entire value including goods. Section 17(5)(c) blocks the project owner’s input tax credit, making that 18% a hard cost.

An EPC contract for the construction of immovable property, a power plant, refinery or industrial facility, once permanently affixed to earth, is a works contract within Section 2(119) of the CGST Act 2017. Under Schedule II, Entry 6(a), a works contract is deemed a supply of services, and the taxable value is the entire contract value including the value of goods incorporated into the property. There is no goods/services bifurcation for rate purposes. The applicable rate is 18% IGST under Heading 9954(ii) of Notification No. 11/2017-CT(R). The Gujarat AAR confirmed in the Thyssenkrupp matter (February 2025) that an EPC contract cannot be split for GST: it is composite, and the principal supply is the service.

The ITC block, an 18% permanent cost to the project owner

Section 17(5)(c) blocks input tax credit on works contract services supplied for construction of immovable property (other than plant and machinery), except where the service is an input for the further supply of works contract services. Section 17(5)(d) blocks credit on goods or services received for construction of immovable property on one’s own account.

The commercial consequence is blunt and is frequently discovered at invoice stage rather than bid stage: GST paid on an EPC works contract is not creditable to the project owner. A power developer or industrial sponsor awarding an EPC contract cannot recover it, because it is not itself in the business of supplying works contract services. On a ₹500 crore onshore EPC scope, 18% IGST is ₹90 crore of permanent, non-recoverable cost. That figure belongs in the bid model, and the contractor should raise it with the owner before the contract is signed rather than after the first invoice.

The exception is plant and machinery. The Explanation to Section 17 defines plant and machinery as apparatus, equipment and machinery fixed to earth by foundation or structural support, used for making outward supply, excluding land, buildings and other civil structures. Credit is available on that component. Following the Supreme Court’s judgment in Safari Retreats (October 2024), the 55th GST Council recommended and the Finance Act 2025 implemented a retrospective amendment (from 1 July 2017) to Section 17(5)(d), replacing ‘plant or machinery’ with ‘plant and machinery’ and aligning clauses (c) and (d) with the Explanation’s definition.

The practical instruction: where the EPC scope can be credibly segregated between plant and machinery installation and civil works, that segregation should be documented contemporaneously in the contract and the invoices. It is worth real money to the owner, and it is not recoverable retrospectively from a lump-sum invoice.

Intra-entity supply, the head office charge nobody books

Schedule I, Entry 4 of the CGST Act deems the import of services by a taxable person from a related person, or from any of its other establishments outside India, to be a taxable supply, even where no consideration is charged. When the foreign parent sends engineers to the Indian Project Office, provides offshore design support, or allocates head office costs, that is a taxable supply under Schedule I whether or not an invoice is raised. The valuation is governed by Rule 28 of the CGST Rules. As clarified by CBIC Circular No. 210/4/2024-GST (read with Circular No. 199/11/2023-GST), where the recipient is eligible for full input tax credit, the invoice value is deemed to be the open market value, and where no invoice is issued, the value may be treated as Nil and deemed to be the open market value under the second proviso to Rule 28.

Offshore supply is outside GST, but the import is not

Offshore supply of equipment manufactured outside India with title passing outside India is not a supply of goods within India. Schedule III, Entry 7 provides that the supply of goods from a non-taxable territory to another non-taxable territory, without the goods entering India, is neither a supply of goods nor a supply of services, it is simply outside GST. When the equipment subsequently crosses into Indian customs territory, customs duty and IGST on import arise under the Customs Act at the point of clearance.

These are two distinct taxable events, the sale outside India (Schedule III, no GST) and the importation into India (customs plus IGST on import, collected by customs). The project owner pays IGST on import and may claim it as credit, subject to the Section 17(5) blocked credit rules. There is no double taxation, and the confusion on this point in practice arises from treating the two events as one. The customs side of that second event, and the Project Imports Scheme that governs it, is the subject of Part 3 of this series.

Checklist: Tax Architecture

A project-use reference for the material in Part 2. It is not a substitute for project-specific legal and tax advice.

Pre-award

Contract architecture: the offshore/onshore split

• Allocate separate consideration to offshore supply, offshore services and onshore works. No single lump sum
• Title passage clause: no conditions deferring title to Indian commissioning or performance testing
• Offshore supply paid directly to the offshore account in foreign currency, never through the Project Office INR account
• Project Office remit confined to onshore scope. Document personnel separation from offshore procurement
• Wrap-around agreement: no monetary consideration. Frame as a parent company guarantee or performance undertaking
• Cross-fall breach clause: resist, or deliver single-point recourse through the wrap-around agreement instead
• Prepare price allocation support: comparable market pricing offshore, cost-plus onshore

Mobilisation

• Register for GST, no turnover threshold applies to a non-resident taxable person (Section 24, CGST Act)
• Apply for the Section 197 lower withholding certificate (Form 13) before the first milestone payment
• File Form 10F electronically and obtain the Tax Residency Certificate before the first FTS or royalty payment
• Establish the mechanism to value and pay IGST on deemed intra-entity supplies from the head office (Schedule I Entry 4)

Execution

Permanent establishment scope

• Project Office personnel must not touch offshore procurement, supplier selection or offshore logistics. Document the separation operationally, not just on paper
• Track aggregate supervisory days per site against the treaty construction PE threshold
• Track supervisory charges as a percentage of the offshore equipment sale price. Alert at 8% (India-UK 10% trigger)
• Track offshore design engineers’ days in India against the service PE threshold

Withholding and GST

• Apply the Section 195 analysis to every payment before it is made
• File Form 15CA (Form 145 from 1 April 2026) before every outward remittance
• Obtain Form 15CB (Form 146) where the payment exceeds ₹5 lakh
• Renew the Section 197 certificate at the start of each assessment year
• Charge IGST at 18% on works contract invoices (Heading 9954(ii), Notification 11/2017-CT(R))
• Advise the owner of the Section 17(5)(c) input tax credit block, the 18% is a hard cost to them
• Document the plant and machinery component of the scope to support the owner’s credit claim on that portion
• Pay monthly IGST on intra-entity supplies; reconcile against actual head office cross-charges

Completion and closure

• Section 44BBB / Section 61 election: model the actual onshore margin against the 10% deemed rate before filing. The election is irrevocable
• From Tax Year 2026-27, factor in the Section 61(4) categorical bar on all losses, allowances and deductions, including Section 44C head office expenditure
• Prepare transfer pricing documentation for each assessment year separately. Do not consolidate at project end
• Where assessments are pending, engage the Assessing Officer under Section 197 / 195(3) on the final remittance
• File all outstanding GST returns; claim available credit; cancel the GST registration formally under Section 29 CGST Act

Frequently Asked Questions

• Is offshore supply of equipment taxable in India?

Not if three conditions are met: title passes outside India, payment is received outside India in foreign currency, and the Indian permanent establishment played no role in the offshore supply. Ishikawajima-Harima Heavy Industries v. DIT, (2007) 288 ITR 408 (SC), held that a turnkey contract is not an indivisible taxable unit and that apportionment applies. Establishing a Project Office does not by itself bring offshore supply into the Indian tax net.

• What is the withholding tax rate on fees for technical services paid to a foreign contractor?

Section 115A applies at 20% where the fees are not effectively connected with a permanent establishment. The Finance Act 2023 doubled this from 10% with effect from 1 April 2023, taking the effective rate for a foreign company from roughly 10.92% to roughly 21.84%. Most treaty rates are 10% to 15%, but claiming them now requires a PAN, Form 10F filed electronically, a Tax Residency Certificate and an Indian return.

• What is the effective tax rate under Section 44BBB for a foreign EPC contractor?

Section 44BBB deems 10% of gross receipts as taxable profit. Applied against the foreign company rate of 35% base plus 5% surcharge plus 4% cess, the effective rate is approximately 3.81% of gross receipts. It applies only to a foreign company, only to civil construction or erection, testing and commissioning, and only on a Central Government-approved turnkey power project. It is adverse where the actual onshore margin is below 10%.

• Can the project owner claim input tax credit on GST paid on an EPC contract?

Generally no. Section 17(5)(c) of the CGST Act blocks input tax credit on works contract services supplied for construction of immovable property, except where the recipient is itself supplying works contract services onward. For a power developer or industrial sponsor, 18% IGST on the onshore EPC value is a permanent, non-recoverable cost. Credit remains available on the plant and machinery component, following Safari Retreats and the Finance Act 2025 amendment.

• Does a foreign company pay 40% or 35% tax in India?

35%. The Finance (No. 2) Act 2024 reduced the base corporate income tax rate for foreign companies from 40% to 35% with effect from FY 2024-25. Surcharge of 2% applies where total income is between ₹1 crore and ₹10 crore, and 5% above ₹10 crore, plus health and education cess of 4%. An Indian subsidiary, by contrast, pays 25.17% under Section 115BAA.

About the Author

Ravish is a dual-qualified lawyer and Solicitor admitted to practice in India and on the roll of the Solicitors Regulation Authority (England and Wales). He specialises in international arbitration and international taxation, and holds the Advanced Diploma in International Taxation (ADIT) from the Chartered Institute of Taxation (CIOT). His practice focuses on cross-border disputes, enforcement strategy, and complex tax-driven structuring.

 

Further details are available on his LinkedIn Profile: https://www.linkedin.com/in/adit-ravishbhatt/

 

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Disclaimer

This article provides general information only and is not legal, tax, or financial advice. India inbound structuring requires coordinated input from advisers in all relevant jurisdictions, and outcomes depend heavily on facts, residency, substance, and evolving laws. This Part 2 covers the tax architecture; Part 1 covered entity structure and mobilisation, and Parts 3 and 4 cover customs and commercial risk. Readers should seek professional advice before acting on any material herein. R & D Law Chambers LLP assumes no responsibility for any reliance placed on this summary.