POEM in India 2026: Key Triggers That Can Make Your Foreign Subsidiary an Indian Tax Resident

The “place of effective management” (POEM) can quietly turn a low-tax overseas structure into a fully taxable in India company if you’re not careful. In simple words, if your foreign subsidiary is effectively managed from India, Indian tax authorities may treat it as a tax resident in India, bringing its global income into the Indian tax net.

This guide breaks down how POEM in India works in 2026, what key management and commercial decisions can trigger it, and what businesses should do to stay on the right side of Indian tax law often with input from an experienced CA firm in Gurgaon familiar with cross-border structures and POEM risk.

What Is POEM in India and Why It Matters

In international tax law, POEM refers to the place of effective management of a company the place where the company’s key management and commercial decisions are made in substance, not just on paper.

Under Indian tax rules, if the place of effective management (POEM) of a foreign company is deemed to be in India, that company can be treated as resident in India for tax purposes.

POEM impacts foreign companies by potentially bringing their global income into the Indian tax net and subjecting them to full Indian tax and compliance obligations.

Why this matters:

• A tax resident company in India is taxed on its total income, including global income.
• A non-resident is usually taxed only on income from business in India or activities in India.

Therefore, determining tax residency correctly under Section 6 of the Income-tax Act, 1961 is critical to avoid unexpected tax exposure, compliance burdens, or double taxation.

Background: POEM Provisions in Indian Tax Law

The concept of POEM was introduced into Indian tax law via amendments to the Income Tax Act (Income-tax Act, 1961) and later refined through Finance Act changes and detailed POEM guidelines issued by the Central Board of Direct Taxes (CBDT).

Broadly:

• For foreign companies, tax residency depends on whether the place where key management and commercial decisions are made is in India.
• If POEM is in India, the company is treated as tax resident in India and shall be taxable in India on its global income at the applicable tax rate.
• If POEM is outside India and it has active business outside India, it is generally treated as a non-resident, even if there is some presence in India.

In short, POEM rules are India’s way of tackling structures where companies are formally incorporated abroad but effectively managed from India or controlled from India.

When Does POEM Apply? Thresholds and Scope

POEM is not meant for every small overseas company. It typically applies where:

• The entity is a foreign company (not incorporated as an Indian company).
• Its turnover or gross receipts exceed the prescribed threshold (for example, earlier CBDT guidance often focused on companies with gross receipts above a certain limit in a financial year).
• The status of a company as resident in India or non-resident is required to be determined for that year.

The idea is to focus on multinational structures where significant business activities and management of the company may be linked with India.

Recommended: Case Study: POEM Concept and Its Impact on Taxation in India

The Core Test: Place of Effective Management

At the heart of POEM is one simple question:

“Where are the key management and commercial decisions that are necessary for the conduct of the business of the company as a whole actually made?”

This is the key management test. Some practical indicators:

• Where does the board of directors truly function?
• Where are strategic decisions on global operations taken?
• Where do senior management usually sit when they make those decisions?
• Is the foreign company effectively managed from India, even if board meetings are formally held outside India?

In practice, substance over form is critical. A company’s POEM shall be the place where decisions are really taken, not just where minutes are signed.

Active Business Outside India: A Key Safe Harbour

The CBDT poem guidelines and poem rules give relief to foreign companies that have active business outside India.

A company is generally considered to have active business outside India when:

• Majority of gross receipts and business activities are outside India.
• Most of its assets and employees are situated outside India.
• Key functions are genuinely performed abroad, and the company isn’t just a shell operating in India in disguise.

Where a company clearly qualifies as having active business outside India, POEM is deemed to be outside India unless:

• The place where the key management and commercial decisions are made is clearly located in India on most occasions in the year.

In other words, if the active business outside India test is met, India follows a more relaxed approach but it still checks whether the company is in reality managed from India.

Key Triggers That Can Make a Foreign Subsidiary a Tax Resident in India

Here are some red-flag situations where POEM in India risk becomes high, especially for a foreign company linked to an Indian company or group:

1 Board and Senior Management Mostly in India

If:

• The senior management (CEO, CFO, key directors) are mostly located in India, and
• Important key management and commercial decisions are taken during meetings or calls from India,

…then the place where key management decisions are made may be considered India.

2 Real Control from India, Even if Meetings Are Abroad

Even if board meetings are held outside India, POEM risk rises if:

• Indian promoters or executives dictate decisions from India,
• Overseas directors routinely act on directions from management of the company in India, and
• The overseas board is just rubber-stamping decisions already taken in India.

In such cases, POEM shall likely be considered situated in India because substance is more important than the place of formal signatures.

3 Use of Foreign Company Primarily as a Tax Haven

If a foreign entity is:

• Set up in a low-tax jurisdiction or tax haven,
• Has minimal employees in India or abroad,
• Does not have real business activities outside India, and
• Appears to only hold passive income (like royalties, interest, dividends) for an Indian group,

…the Indian tax authorities may view this structure as being effectively controlled from India, and POEM is determined to be in India for tax purposes.

4 Centralised Group Decisions from India

Where the company’s POEM is effectively driven by:

• Group strategy meetings located in India,
• A central headquarters in India where the company’s key management and commercial decisions for multiple foreign subsidiaries are adopted,

…the risk is that the place of effective management of the foreign subsidiary is also deemed to be in India.

In such cases, tax authorities examine transfer pricing regulations and inter-company decision-making to assess whether the foreign entity has real autonomy or whether strategic control is exercised from India, strengthening a POEM challenge.

Tax Implications of POEM in India

Once POEM is in India, the foreign company may be treated as a tax resident in India for that financial year. Key tax implications include:

• Its total income, including global income, shall be taxable in India.
• The tax residency status changes from non-resident to resident for that year.
• It may need to pay tax at the applicable tax rate for tax resident companies.
• It has to comply with Indian tax laws on tax reporting, computation of income, and tax obligations similar to any company in India.

This can significantly increase the tax burden, especially where the foreign company was earlier enjoying a lower-tax regime.

On the other hand, the company may seek relief under:

• Double Taxation Avoidance Agreements (DTAA) by applying the tie-breaker rules for determining the tax residency of companies, especially where the foreign jurisdiction also claims residency.

But such cases often lead to tax disputes, negotiations, and scrutiny of where key management and commercial decisions are really taken.

Know more: Corporate Tax for Foreign Companies: Tax Rates & Income Tax Return in India

POEM vs Permanent Establishment (PE) – Don’t Confuse the Two

Many businesses mix up POEM with permanent establishment (PE).

• POEM deals with tax residency of the entire foreign company. If POEM is determined to be in India, the company’s global income may become taxable in India.
• PE generally deals with a fixed place of business or services in India, through which part of the business is carried on. Only profits attributable to the PE are taxed in India.

So, POEM is a deeper test: instead of just looking for a fixed place of business, it looks at where the company is really managed from.

Managing POEM Risk: Practical Steps for Groups

If your group has foreign companies that could be linked to India, consider these steps to manage POEM rules in India:

9.1 Clear Identification of POEM

• Document where management of the company actually happens.
• Ensure board meetings and strategic decision-making are genuinely outside India if that is the intended position.
• Avoid situations where the place where the key decisions are always India, while the company pretends to be managed elsewhere.

9.2 Substance Over Form

• Build real business activities abroad local staff, employees in India only supporting Indian operations, not running the global business.
• Make sure commercial decisions are taken where the company claims its place of effective management is.

9.3 Check “Active Business Outside India”

• Monitor the turnover or gross receipts split between India and outside India.
• If you want the comfort of active business outside India, maintain that majority of gross receipts, assets, and employees are outside India.

9.4 Document Decision-Making

• Keep records of board minutes, decision memos, and call logs showing where decisions are made.
• This supports your position if Indian tax authorities later question your tax residency.

9.5 Annual Review of POEM Risk

• At the end of the financial year, review:
• Where key meetings were held
• Who took major decisions
• Whether facts on the ground changed (e.g., senior management shifting to India)

This is especially important when there are changes driven by group restructuring, remote work, or new investments.

Conclusion: POEM Is About Control, Not Just Location

In 2026, POEM in India continues to be a key tool for the government to ensure that foreign companies that are effectively managed from India don’t escape the Indian tax regime.

If a foreign company is managed from India, controlled from India, or its commercial decisions are made in India, then irrespective of where it is incorporated or where its board formally meets, POEM shall likely be considered in India and it may be treated as a tax resident in India.

For groups with cross-border structures, the message is clear:

• Understand POEM provisions and POEM guidelines.
• Ensure your structures have real substance over form.
• Review how and where decisions are actually taken, not just how they are documented.

Handled well, you can comply with Indian tax rules, minimise surprise tax liability, and still run efficient cross-border operations. Ignored, however, POEM can suddenly turn a “foreign” company into an Indian tax resident, along with its full global income.

If your group has foreign subsidiaries that may be managed from India, or if you’re unsure how POEM rules apply to your structure, this is the right time to review and regularise matters before the next financial year closes ideally with guidance from an experienced CA firm in Gurgaon familiar with POEM and cross-border tax issues.