By Naraway
In this article
When an Indian company pays a foreign company that has no Permanent Account Number, the payer must usually withhold tax at 20% or the normal rate, whichever is higher. On a royalty or service fee, the difference can be most of the margin.
The rule has a new address. On 1 April 2026 the Income-tax Act, 2025 replaced the 1961 Act, and section 206AA's higher withholding moved to section 397(2).
The Numbers a Business Needs in India
| ID | What it is for |
|---|---|
| PAN (Permanent Account Number) | Income tax identity; needed to avoid the higher withholding rate and to file returns |
| TAN (Tax Deduction Account Number) | Needed by anyone who deducts tax at source, such as an employer or a company paying vendors |
| GSTIN | GST registration for supplying goods or services |
| IEC (Importer Exporter Code) | Needed to import or export goods |
| CIN | Company identity number, issued at incorporation |
A foreign company without an Indian entity applies for PAN on Form 49AA. An Indian subsidiary receives PAN and TAN at incorporation through the SPICe+ form, without a separate application.
The Exemption for Non-Residents
Rule 37BC carves out non-residents, including foreign companies, receiving interest or royalty. They can avoid the higher rate without a PAN by giving the payer specified details: name, address, contact details, tax residency information and their tax identification number at home. Other payments, such as fees for technical services, need care: sources differ on how far the carve-out reaches, so the Income Tax Department's own list is the safe reference.
What Changed in 2026
The Income-tax Act, 2025 renumbered most of the tax law. Section 206AB, the higher rate for non-filers, had already been dropped from 1 April 2025. The PAN rule continues as section 397(2). Contracts, tax clauses and vendor forms written with the old section numbers still work in substance, but documentation now cites the new sections.
Banking for a Foreign-Owned Company
An Indian subsidiary opens a current account like any Indian company, with additional checks on its foreign shareholders and beneficial owners. Share capital from abroad must arrive through banking channels, and the bank's confirmation of the inward remittance is the document RBI's FC-GPR filing depends on. For many new subsidiaries, the bank account is the longest step after incorporation.
Part of Naraway's research series India Market Entry in 2026.
In short
Yes, a foreign company can hold a PAN in India; it applies on Form 49AA. Without a PAN, an Indian payer generally has to withhold tax at the higher of the applicable rate or 20% under section 206AA of the Income-tax Act, 1961, now carried into section 397(2) of the Income-tax Act, 2025 from 1 April 2026. Non-residents receiving interest or royalty can avoid the higher rate by giving specified details such as tax identification number and address (Rule 37BC). An Indian subsidiary gets its PAN and TAN automatically at incorporation through SPICe+.
- Foreign companies apply for PAN on Form 49AA.
- No PAN: withholding at the higher of the normal rate or 20%.
- Section 206AA's rule continues as section 397(2) of the Income-tax Act, 2025, from 1 April 2026.
- Rule 37BC: non-residents can avoid the higher rate on interest and royalty by giving specified details.
- Indian subsidiaries receive PAN and TAN at incorporation through SPICe+.
Sources
- Section 206AA read with section 206AB: tutorial, Income Tax Department
- Rule 37BC, Income Tax Department
- Higher rate of TDS for non-furnishing of PAN: section 397(2) (206AA and 206CC), TDSMAN
- Clause 397(2) of the Income Tax Bill, 2025 vs section 206AA, TaxTMI
Frequently Asked Questions
Can a foreign company have a PAN in India?
Yes. Foreign companies and other non-residents apply for a PAN on Form 49AA.
What happens if a non-resident does not have a PAN?
The Indian payer generally withholds tax at the higher of the applicable rate or 20%, under section 206AA of the 1961 Act and section 397(2) of the Income-tax Act, 2025.
Is there an exemption from the higher TDS rate for non-residents?
Under Rule 37BC, a non-resident including a foreign company receiving interest or royalty need not furnish PAN if it provides specified details such as name, address, tax identification number and tax residency information.
Does an Indian subsidiary need to apply separately for PAN and TAN?
No. PAN and TAN are allotted at incorporation through the SPICe+ form.
When did the Income-tax Act, 2025 take effect?
On 1 April 2026, replacing the Income-tax Act, 1961.
