With the Indian economy on an upswing, a large number of foreign companies are operating in the country through representative offices or representatives/consultants. Because of this, the number of cross-border transactions has increased substantially.
It has become an area of interest for both Reserve Bank of India (RBI) and the Income Tax (IT) department. RBI works as a watchdog for inflow and outflow of foreign funds while the IT department puts restrictions to ensure appropriate taxes have been paid on any revenue earned in India.
Review of the transactions by the Indian Revenue Authority is based on the types of transaction. We can put these transactions into two broad categories: