Chapter XIII - Determination of Tax in Special Cases
Section 220
Section 220: foreign company said to be resident in India
Section 220 applies to a foreign company that is treated as resident in India for the first time in a tax year - typically because its place of effective management shifts to India. Rather than applying the Act's ordinary rules without modification, the section lets the Central Government notify special, relaxed rules for how such a company computes its income for that transition.
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Need advice on Section 220?
This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Where a foreign company is said to be a resident in India in any tax year and such company has not been a resident in India in earlier tax years, then, irrespective of anything in this Act and subject to the conditions as may be notified by the Central Government in this behalf, the provisions of this Act relating to—
(a) the computation of total income;
(b) treatment of unabsorbed depreciation;
(c) set off or carry forward and set off of losses;
(d) collection and recovery; and
(e) special provisions relating to avoidance of tax, shall apply with such exceptions, modifications and adaptations as specified in that notification for such tax year.
(2) Where the determination regarding foreign company to be resident in India has been made in the assessment proceedings for any tax year, then, the provisions of sub-section (1) shall also apply to any other tax year succeeding such tax year, which ends on or before the date of completion of such assessment proceeding.
(3) Where, in a tax year, any benefit, exemption or relief has been claimed and granted to the foreign company as per the provisions of sub-section (1), and, subsequently, there is failure to comply with any of the conditions specified in the notification issued under the said sub-section, then,—
(a) such benefit, exemption or relief shall be deemed to have been wrongly allowed;
(b) the Assessing Officer may, irrespective of anything in this Act, re-compute the total income of the assessee for the said tax year and make the necessary amendment as if the exceptions, modifications and adaptation referred to in sub-section (1) did not apply; and
(c) the provisions of section 287 shall, so far as may be, apply thereto and the period of four years specified in sub-section (8) of that section being reckoned from the end of the tax year in which the failure to comply with the condition referred to in sub-section (1) takes place.
(4) Every notification issued under this section shall be laid before each House of Parliament.
Introduction
A foreign company that becomes resident in India may face transitional computation and compliance issues. Section 220 lets the Central Government notify modifications for that situation.
The relief is conditional: a later failure to follow the notified terms may reverse a benefit previously given.
Key takeaways
Newly resident foreign company
For a foreign company becoming resident in India, the Central Government may notify modified computation, payment and administration conditions.
Relief may be withdrawn
A company that later breaches the notified conditions can lose relief previously allowed under the modified rules.
What Section 220 provides
Where a foreign company becomes resident in India in a tax year, having not been resident in earlier years, the Central Government may notify conditions under which the Act's provisions relating to computation of total income, treatment of unabsorbed depreciation, set off or carry forward and set off of losses, collection and recovery, and special anti-avoidance provisions will apply with exceptions, modifications and adaptations for that tax year.
Once a determination that the foreign company is resident in India has been made in assessment proceedings for a tax year, the modified treatment also extends to any later tax year that ends on or before the date that assessment is completed.
Withdrawal of relief on non-compliance
If a benefit, exemption or relief was claimed and granted under the notified modifications, and the company later fails to comply with any condition in that notification, the benefit is deemed to have been wrongly allowed. The Assessing Officer may then recompute the company's total income for that tax year as if the modifications had never applied, and make the necessary amendment, using the amendment machinery of Section 287, with that section's four-year limitation period reckoned from the end of the tax year in which the non-compliance occurred.
Parliamentary oversight
Every notification issued under this section must be laid before each House of Parliament.
Step-by-step flow for applying Section 220
- 1
Is the foreign company said to be resident in India in the tax year?
Residence is decided under the residence rules of the Act (Section 6).
- No: Section 220 does not apply.
- Yes: Go to the next step.
- 2
Was the company not resident in India in all earlier tax years?
Section 220(1) covers only a company that has not been resident in India in earlier tax years.
- No, it was resident earlier: Section 220(1) does not apply.
- Yes, first time resident: Go to the next step.
- 3
Apply the notified exceptions, modifications and adaptations for that tax year
They can cover computation of total income, unabsorbed depreciation, set off and carry forward of losses, collection and recovery, and the special anti-avoidance provisions. The detail and the conditions are in the Central Government notification, not in Section 220.
- 4
Was the residence determined in assessment proceedings?
- Yes: Under Section 220(2), Section 220(1) also applies to each later tax year that ends on or before the date the assessment is completed.
- No: Apply Section 220(1) to the tax year concerned.
- 5
Is there a later failure to meet a notified condition after relief was claimed and granted?
Under Section 220(3) the relief is deemed wrongly allowed. The Assessing Officer may re-compute total income as if the notified changes did not apply. Section 287 applies, with the four-year period in Section 287(8) counted from the end of the tax year in which the failure occurs.
Practical checklist
Do
- Identify the notification that modifies tax rules for the foreign company becoming resident.
- Document ongoing compliance with each notified condition.
Avoid
- Treat a notified exemption or relief as permanent if its conditions fail later.
Illustrative example
Worked example: residence found in an assessment
Hypothetical facts (illustration only, not a real taxpayer): A foreign company has never been resident in India. In the assessment for the tax year beginning 1 April 2027 it is held to be resident in India for that year. The assessment is completed on an assumed date of 15 December 2029. All facts are assumed.
First-time residence
The company is resident in the tax year beginning 1 April 2027 and was not resident in earlier tax years, so Section 220(1) applies to that year.
Later years
Under Section 220(2), it also applies to any later tax year ending on or before 15 December 2029. The tax year beginning 1 April 2028 ends on 31 March 2029, so it is covered.
Year not covered
The tax year beginning 1 April 2029 ends on 31 March 2030, which is after 15 December 2029. Section 220(2) does not extend to it.
Notified rules
For the two covered years, the company applies the exceptions and conditions in the Central Government notification.
Outcome
- Section 220(1) applies to the tax years beginning 1 April 2027 and 1 April 2028.
- If a notified condition is later breached, the relief can be withdrawn under Section 220(3).
Frequently asked questions
Who does Section 220 apply to?
A foreign company that becomes resident in India in a tax year for the first time - typically because its place of effective management has shifted to India - and was not resident in any earlier tax year.
Does Section 220 itself set out the relaxed rules?
No. The section only authorises the Central Government to notify the exceptions, modifications and adaptations; the actual conditions and relief are contained in the notification, not in the bare text of Section 220.
What happens if the company stops meeting the notified conditions?
The Assessing Officer can treat the earlier relief as wrongly allowed and recompute the company's total income for that tax year as if the modified rules never applied.
Need help applying this provision to your situation?
Discuss your company's India residency status with our tax teamLast updated 9 October 2026