In a clarificatory circular by the CBDT, POEM shall not be applicable to a company having a turnover or gross receipts of INR 50 crores or less in a financial year.
Last month, the tax department had come out with the long-awaited Place of Effective Management (POEM) rules that will require foreign companies in India and Indian firms with overseas subsidiaries to pay local taxes based on where the business if effectively controlled.
While issuing the POEM rules, effective the current fiscal, CBDT had said the intent is to target shell companies and those which are created for retaining income outside India although real control and management of affairs are located in India.
This circular re-emphasises that the government intends to contain avoidable litigation by placing a cap on category of companies for which POEM can be invoked. The clarification is welcome as this was causing unnecessary confusion in the minds of taxpayers.