Budget 2026: New tax rules for foreign digital & tech companies may be unveiled
Budget 2026 will unveil new formula-based tax rules for foreign digital and tech companies operating in India without a physical presence. These reforms aim to create a cleaner, dispute-free tax system, ensuring fair revenue for India while boosting the investment climate. With a Rs 10 lakh threshold for small companies and double taxation relief, these rules will clarify tax obligations for GCCs and data centers.
New Delhi: The central government is expected to announce a big decision regarding the tax rules related to foreign companies in the Budget 2026. The new tax rules could be implemented for companies, which are earning good income through digital or technology without setting up a big office or factory in India. The government is considering introducing such rules so that the tax system can be made cleaner, easier and dispute-free.
So far, the tax on a foreign company in India is clearly levied only when it is considered a permanent establishment. But in the era of digital companies, it has become difficult to determine whether the company's real presence is in India or not. Due to this confusion, many companies have received tax notices and long cases are going on. Now the government is considering replacing the old rules with a formula-based tax system, in which a certain part of the company's profits will be taxed on the basis of income linked to India.
Negotiations on a global tax regime under the OECD are underway across the world, but it is constantly being delayed. In such a situation, the Indian government does not want the country's tax rights to weaken. This is why it is preparing to introduce such a system at the domestic level, so that foreign and multinational companies get certainty in tax and the government gets the right revenue.
According to the ET report, if the payment received directly from India to a foreign company is less than Rs 10 lakh, then it will not be taxed. But if this limit is exceeded, then a certain formula will determine how much profit will be subject to tax in India. This will provide relief to small companies and startups, while the same rules will apply to big digital and tech companies. Apart from this, the government is also taking care that double tax is not imposed on companies. If an Indian affiliate company has already paid tax, then the foreign company will get tax credit on the same profits. This will make the system more fair and transparent.
Many GCCs and data centres in India have faced tax uncertainty so far. With the implementation of the new rules, they will clearly know how much tax is to be paid and why. This will improve the investment climate and may reduce litigation. If these changes are implemented in Budget 2026, India can emerge as a digital-friendly but tax-smart country. It is possible that the tax rates may not be reduced directly, but when the rules are cleared, companies will invest more, which will benefit both employment and the economy.