India market entry · Project office tax and GST
Tax, GST and Transfer Pricing for Project Offices in India
Prepared by S U and Company's CA-led advisory team · Published 27 October 2026 · About S U and Company
A project office's tax position is shaped by the contract more than by anything else — its duration, who is deducting tax on payments, and whether the underlying work qualifies for a presumptive rule instead of profit computed from full books. Working this out before bidding, not after the contract is signed, avoids refund delays when the project closes.
Quick answer
How is a project office of a foreign company taxed in India?
A project office is taxed as a foreign company at 35% plus surcharge and cess on profits from the project, unless a presumptive taxation rule applies. The Indian client may deduct tax at source on payments to the project office, a lower deduction certificate can reduce that withholding, and the project office must pay advance tax, file a return, register for GST, and treat its head office as a distinct person under GST.
1. The income tax rate, and when presumptive taxation applies instead
| Taxable income | Base tax | Surcharge | Cess | Effective rate |
|---|---|---|---|---|
| Up to ₹1 crore | 35% | None | 4% | 36.4% |
| ₹1 crore to ₹10 crore | 35% | 2% | 4% | 37.128% |
| Above ₹10 crore | 35% | 5% | 4% | 38.22% |
India's income tax law has presumptive rules for certain categories of foreign-company contracts — civil construction, or the erection of plant for turnkey power projects, among them — where a fixed percentage of receipts is treated as taxable profit instead of computing actual profit from the project's own books. Whether a given contract qualifies, and whether the presumptive result is actually better than the real-books result, needs checking case by case rather than assumed from the contract type alone.
2. Permanent establishment and the time test
A project office is generally a permanent establishment simply by being a fixed place of business. Separately, a construction or installation project can create a permanent establishment under the applicable tax treaty once it passes the treaty's own time test for how long a site has to run before it counts — this is a treaty-specific threshold, not a fixed number that applies the same way to every country.
3. Withholding by the client, and the lower deduction certificate
The Indian company awarding the contract may deduct tax at source on payments to the project office under the standard withholding rules. Where the project's actual profit margin is lower than what the default withholding assumes, a lower deduction certificate can reduce the rate withheld, which keeps cash flowing through the project rather than trapped as an over-withheld credit to be recovered only at year-end.
4. Filing obligations through the project
- Income tax return and tax audit. Filed every year the project office is active, with a tax audit report where turnover exceeds the applicable limit.
- Advance tax. Paid in four instalments — by 15 June, 15 September, 15 December and 15 March — after credit for tax already deducted by the client.
- TDS compliance. Deducted on payments to subcontractors, staff and vendors.
- Transfer pricing. A Form 3CEB report for dealings with group companies above the applicable thresholds, and separately, profit attribution between the foreign company and the project office.
5. GST: registration and the distinct-person rule
A project office generally registers for GST if its turnover is above the threshold or it makes certain types of supplies, such as works contract services, filing returns monthly or quarterly. As with a branch office, the project office and its head office abroad are treated as distinct persons under GST, so services between them are generally not zero-rated exports, and services received from the head office can be an import of services taxed on reverse charge. See our branch office tax and GST guide for the comparable detail.
6. Remittance tax paperwork and closing
Payments to the foreign company — fees, royalties, interest — need tax analysis, a withholding rate confirmed under the applicable treaty, and Forms 15CA and 15CB. Before closing, the authorised dealer bank typically asks for evidence that taxes are paid, so the tax position should be settled as the project winds down, not scrambled together once closure is already underway. See our FEMA compliance guide for the closure sequence itself.
Frequently asked questions
What is the income tax rate for a project office in India?
A project office pays tax as a foreign company: 35% on its income, plus a 2% surcharge above ₹1 crore or 5% above ₹10 crore, plus 4% cess — roughly 36.4% to 38.22% effective, unless a presumptive rule applies to the specific contract.
Is presumptive taxation available for a project office?
In some cases. India’s income tax law has presumptive rules for certain categories of foreign-company contracts, such as civil construction or the erection of plant for turnkey power projects, where a fixed percentage of receipts is treated as taxable profit instead of computing actual profit from the books.
Does the Indian client deduct tax on payments to a project office?
Often yes. The Indian client awarding the contract may deduct tax at source on payments to the foreign company, and a lower deduction certificate can reduce the rate withheld where the project’s actual profit margin is lower than the default withholding assumes.
Is a project office a permanent establishment in India?
Generally yes — it is a fixed place of business, and a construction or installation project can separately create a permanent establishment under the applicable tax treaty once it passes the treaty’s own time test for the site.
Does a project office need to register for GST?
Generally yes, if its turnover is above the registration threshold or it makes certain types of supplies, such as works contract services, with returns filed monthly or quarterly.
Is tax clearance needed to close a project office?
Generally yes. The authorised dealer bank typically asks for evidence that taxes are paid before the project’s surplus is remitted, so the tax position should be settled before the closure process is started, not during it.
How S U and Company can help
We review the permanent establishment and presumptive-taxation position before a contract is bid, prepare and file the project office's return, GST registration and transfer pricing report, and apply for lower deduction certificates where useful. See our FEMA and RBI compliance guide and accounting and audit guide, or explore the US-to-India entry guides.
Sources and further reading
- Income Tax Department — presumptive taxation rules and tax treaty resources.
- GST portal — registration and returns.