Foreign bank account of a co.

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Sushant Mahajan (Querist)
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07 September 2012 If a Limited Company registered in India, wants to open a bank A/c in a country other than India to receive its revenue from operations in that respective country, are there any restrictions or implications imposed on it by provisions of Income Tax Act?

Praveen Kumar Rathi

Praveen Kumar Rathi (Expert)
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08 September 2012 no there are no restriction in IT act.

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Sushant Mahajan

Sushant Mahajan (Querist)
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08 September 2012 AND IF IT WANTS TO OPEN BANK ACCOUNT IN THAT COUNTRY JUST TO RECEIVE THE EARNINGS FROM FROM OPERATIONS IN INDIA?

EX: A LTD CO. IS RUNNING A CALL CENTRE IN INDIA FOR A BUSINESS HOUSE IN AMERICA AND IT WANTS TO OPEN A BANK ACCOUNT IN AMERICA TO RECEIVE THE REVENUE, THEN ASLO THERE ARE NO RESTRICTIONS?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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25 July 2024 Opening a foreign bank account by an Indian Limited Company to receive revenue from operations in another country or to receive earnings from operations in India can have implications under the Income Tax Act of India. Here’s a breakdown of the scenarios you mentioned:

### Scenario 1: Opening a Bank Account in Another Country to Receive Revenue from Operations in that Country

**Example**: A Ltd Co. is running a call centre in India for a business house in America and wants to open a bank account in America to receive the revenue.

**Implications**:
1. **Foreign Exchange Management Act (FEMA)**:
- The opening of a foreign bank account is governed by FEMA regulations in India. Companies are required to comply with FEMA guidelines issued by the Reserve Bank of India (RBI) when dealing with foreign exchange transactions.
- Companies need to adhere to FEMA regulations regarding the opening and operation of foreign currency accounts.

2. **Income Tax Implications**:
- From an Indian tax perspective, any income earned outside India would generally be taxable in India unless it qualifies for an exemption or relief under the Double Taxation Avoidance Agreement (DTAA) between India and the foreign country.
- The company would need to comply with Indian tax laws regarding reporting of foreign income and may need to consider transfer pricing regulations if transactions involve related parties.

3. **Reporting Requirements**:
- The company may need to report the foreign bank account details in its annual financial statements and disclose foreign income in its tax return filings in India.

### Scenario 2: Opening a Bank Account in Another Country to Receive Earnings from Operations in India

**Example**: A Ltd Co. wants to open a bank account in America to receive earnings from operations in India.

**Implications**:
1. **FEMA Regulations**:
- Similar to Scenario 1, opening a foreign bank account is subject to FEMA regulations in India. The company needs to comply with FEMA guidelines for foreign exchange transactions.

2. **Income Tax Implications**:
- Income earned in India would generally be taxable in India, irrespective of where the earnings are received or banked.
- The company needs to ensure compliance with Indian tax laws regarding reporting of income earned in India, deduction of taxes at source (TDS), and filing of tax returns.

3. **Transfer Pricing Considerations**:
- If the transactions involve payments or receipts between related parties (e.g., between the Indian entity and its foreign parent company), transfer pricing regulations may apply.

### Conclusion:

- Opening a foreign bank account by an Indian company involves compliance with FEMA regulations for foreign exchange transactions.
- Income earned outside India is generally taxable in India, and proper tax planning and compliance are essential to avoid double taxation and ensure adherence to transfer pricing regulations.
- It's advisable for companies considering such arrangements to consult with tax advisors or legal experts well-versed in international tax and regulatory matters to ensure compliance with both Indian laws and regulations in the foreign country where the bank account is to be opened.