Foreign companies are those companies which are registered outside India and governed by the law of their own country. In this era of Globalization, lot are foreign companies are doing business with Indian companies and generating revenue from India. As per Income tax rules, payment is made to foreign companies after deducting taxes in India, as foreign companies are liable to pay and file taxes in India for any Income received in India. Taxes are withheld at higher rate, if foreign companies do not hold Indian PAN card. Foreign companies must obtain Indian PAN card before getting into any venture in India.
Now, question arises, as why foreign companies are liable to pay and file taxes in India, if they do not have any registrations in India. This is as per basic rule of Indian Income tax that any Income accrue or arise in India are taxable in India. So, Foreign company generating any Income in India is taxable. Rate of taxes will be decided as per DTAA between other country and India. Foreign company have to pay taxes in India and file Income tax return to report that Income in India. All companies whether Indian or foreign are liable for taxes in India, irrespective of any quantum of Income.