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of <h1>India's New Tax Rules: BPOs with Foreign Ties Face Changes in Permanent Establishment and Profit Attribution.</h1> The circular addresses the taxation of IT-enabled Business Process Outsourcing (BPO) units in India involving non-resident entities. If a non-resident entity outsources services to an Indian entity without a business connection, the Indian entity is taxed separately, and the non-resident is not liable under the Income-tax Act, 1961. However, if a business connection exists, the Indian entity may be considered a Permanent Establishment (PE) of the non-resident entity, making the non-resident liable for taxes in India. The circular discusses the determination of profits attributable to the PE based on the arm's length principle, as outlined in the Double Taxation Avoidance Agreements and the Income-tax Act. The previous CBDT Circular No. 1/2004 is withdrawn.
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