Chapter IV - Computation of Total Income
Section 60
Section 60: deduction of head office expenditure in case of non-residents
Section 60 allows a non-resident assessee to deduct head office expenditure attributable to its Indian business or profession while computing income under "Profits and gains of business or profession," but caps that deduction at a fixed percentage of the assessee's adjusted total income, regardless of what any other provision of the Act would otherwise allow.
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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) Irrespective of anything to the contrary contained in sections 26 to 54, in the case of a non-resident assessee, deduction of head office expenditure incurred by such assessee as is attributable to his business or profession in India, shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession” subject to provisions of sub-section (2).
(2) The deduction allowable under sub-section (1) shall be restricted— (a) if the adjusted total income of the assessee is a loss, to an upper monetary limit of 5% of the average adjusted total income of the assessee; or (b) in any other case, to an upper monetary limit of 5% of the adjusted total income of the assessee.
(3) For the purposes of this section,— (a) “adjusted total income” means the total income computed under this Act, without giving effect to the allowance referred to in this section or in section 33(11) or the deduction referred to in section 32(i)(A) or any loss carried forward under section 111(1) or 112(1) or 113(2) or 115(2) or the deductions under Chapter VIII; (b) “average adjusted total income” means,— (i) if the assessee is assessable for each of the three tax years immediately preceding the relevant tax year, the arithmetic mean of his adjusted total income over those three tax years; (ii) if the assessee is assessable only for two of the said three tax years, the arithmetic mean of his adjusted total income over those two tax years; (iii) if the assessee is assessable only for one of the said three tax years, his adjusted total income for that tax year; (c) “head office expenditure” means executive and general administration expenditure incurred by the assessee outside India, including expenditure incurred in respect of— (i) rent, rates, taxes, repairs or insurance of any premises outside India used for the business or profession; (ii) salary, wages, annuity, pension, fees, bonus, commission, gratuity, perquisites or profits in lieu of, or in addition to, salary, whether paid or allowed to any employee or other person employed in, or managing the affairs of, any office outside India; (iii) travelling by any employee or other person employed in, or managing the affairs of, any office outside India; and (iv) such other matters connected with executive and general administration, as may be prescribed.
Introduction
A non-resident may deduct Indian-business-attributable head-office administration costs, but Section 60 limits the amount by adjusted income. The calculation differs when adjusted total income is a loss.
Key takeaways
Non-resident head-office costs
Head-office expenditure attributable to a non-resident’s Indian business or profession is deductible under this special rule.
Five-percent ceiling
The deduction is capped at 5% of adjusted total income, or 5% of average adjusted total income when the current adjusted total income is a loss.
What Section 60 allows
Section 60(1) permits deduction of head office expenditure incurred by a non-resident assessee, to the extent it is attributable to the assessee's business or profession in India, in computing income chargeable under "Profits and gains of business or profession" - overriding the ordinary computation provisions in Sections 26 to 54 to the extent they are inconsistent, subject to the cap in Section 60(2).
The 5% cap
| Situation | Deduction ceiling |
|---|---|
| Assessee's adjusted total income is a loss | 5% of the assessee's average adjusted total income |
| Any other case | 5% of the assessee's adjusted total income |
Key definitions
Section 60(3) defines the terms used in the cap:
- "Adjusted total income" - total income computed under the Act, without giving effect to this section's allowance, the allowance under Section 33(11), the deduction under Section 32(i)(A), any loss carried forward under Section 111(1), 112(1), 113(2) or 115(2), or the deductions under Chapter VIII.
- "Average adjusted total income" - the arithmetic mean of adjusted total income over the three tax years immediately preceding the relevant tax year (or over however many of those three years the assessee was actually assessable, down to just the one year if assessable for only one).
- "Head office expenditure" - executive and general administration expenditure incurred by the assessee outside India, including rent/rates/taxes/repairs/insurance of premises outside India used for the business, salary and other employee-related payments for staff managing offices outside India, travelling by such staff, and other prescribed matters connected with executive and general administration.
Step-by-step flow for applying Section 60
- 1
Is the assessee a non-resident with business or profession income in India?
- No: Section 60 does not apply.
- Yes: Go to the next step.
- 2
Identify head office expenditure
This means executive and general administration expenditure incurred outside India (rent, rates, taxes, repairs and insurance of premises; staff remuneration; travel; other prescribed matters), attributable to the Indian business.
- 3
Compute adjusted total income
Compute total income without this allowance, the Section 33(11) allowance, the Section 32(i)(A) deduction, losses carried forward under sections 111(1), 112(1), 113(2) or 115(2), or Chapter VIII deductions.
- 4
Is adjusted total income a loss?
- No: The cap is 5% of adjusted total income.
- Yes: The cap is 5% of average adjusted total income for the preceding three tax years (or fewer, if assessable for fewer).
- 5
Allow the lower of the attributable expenditure and the cap
Practical checklist
Do
- Identify actual executive and general administration costs incurred outside India and document their connection to the Indian business.
- Compute adjusted total income and apply the statutory 5% cap, using the average-adjusted-income route if that adjusted result is a loss.
Avoid
- Do not charge all global head-office overhead to the Indian operation.
- Do not compute the percentage cap from ordinary book profit without the statutory adjustments.
Illustrative example
Worked example: capping head office costs
Hypothetical facts (illustration only, not a real taxpayer): A foreign company's Indian branch has adjusted total income of ₹4 crore. Head office expenditure attributable to the Indian business is ₹30,00,000. In a later year, its adjusted total income is a loss, and its adjusted total income for the preceding three tax years was ₹3 crore, ₹2.40 crore and ₹3.60 crore.
Profit year: cap
5% of ₹4,00,00,000 = ₹20,00,000.
Profit year: deduction
The lower of ₹30,00,000 and ₹20,00,000, so ₹20,00,000. The other ₹10,00,000 is not deductible.
Loss year: average
(₹3,00,00,000 + ₹2,40,00,000 + ₹3,60,00,000) ÷ 3 = ₹3,00,00,000.
Loss year: cap
5% of ₹3,00,00,000 = ₹15,00,000 is the maximum deduction for that year.
Outcome
- In the profit year, ₹20,00,000 of head office expenditure is deductible.
- In the loss year, the deduction cannot exceed ₹15,00,000.
Glossary
- Head-office expenditure
- Specified executive and general administration costs incurred outside India and attributable to the Indian business.
- Adjusted total income
- The Section 60 amount computed before named allowances and losses for applying the ceiling.
Frequently asked questions
How much head office expenditure can a non-resident deduct in India?
Up to 5% of the assessee's adjusted total income (or 5% of average adjusted total income over the preceding years, if the current year's adjusted total income is a loss), as set out in Section 60(2).
What counts as "head office expenditure" under Section 60?
Executive and general administration expenditure incurred outside India - such as rent, rates, taxes, repairs or insurance for overseas premises used for the business, and salary, travelling and similar costs of staff managing offices outside India - as defined in Section 60(3)(c).
What if the actual head office expenditure is below the 5% limit?
Section 60(2) sets an upper limit only. The deduction is the head office expenditure attributable to the Indian business, but not more than that limit.
Need help applying this provision to your situation?
Get expert help computing your Indian head office deductionLast updated 10 October 2026