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CA Intermediate · Taxation · Residential Status and Scope of Total Income

Vishal Pvt Ltd, an Indian-incorporated company, has its place of effective management (POEM) in Singapore in tax year 2026-27. Its board meetings are held in Colombo and Mumbai. Vishal receives Rs 40 lakh dividend from a Sri Lankan subsidiary outside India and Rs 5 lakh interest on an Indian deposit. Which of the following is correct about taxability?

Rs 45 lakh is taxable because an Indian company is always resident in India. Place of effective management matters only for foreign companies. As a resident, Vishal is taxed on global income, being the Rs 40 lakh foreign dividend plus the Rs 5 lakh Indian interest.

  1. AOnly Rs 5 lakh is taxable as the company is a non-resident company
  2. BRs 45 lakh is taxable because an Indian company is always resident in IndiaCorrect
  3. CRs 45 lakh is taxable because POEM test applies only to foreign companies
  4. DRs 5 lakh is taxable because dividend from abroad is exempt for companies

Explanation

A company incorporated in India is always a resident in India, whatever the location of its POEM. POEM is relevant only to determine the residence of foreign companies. As a resident, Vishal is taxed on global income: Rs 40 lakh + Rs 5 lakh = Rs 45 lakh. Treating it as non-resident because of POEM abroad is the key error.

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