Deduction of head office expenditure in case of non-residents
[As per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 60(1) of Income Tax Act 2025
60(1) Irrespective of anything to the contrary contained in sections 26 to 54, in the case of a non-resident assessee, deduction of head office expenditure incurred by such assessee as is attributable to his business or profession in India, shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession” subject to provisions of sub-section (2).
Section 60(2) of Income Tax Act 2025
60(2) The deduction allowable under sub-section (1) shall be restricted to—
- (a) if the adjusted total income of the assessee is a loss, to an upper monetary limit of 5% of the average adjusted total income of the assessee; or
- (b) in any other case, to an upper monetary limit of 5% of the adjusted total income of the assessee.
Section 60(3) of Income Tax Act 2025
60(3) In this section,—
- (a) “adjusted total income” means the total income computed under this Act, without giving effect to the allowance referred to in this section or in section 33(11) or the deduction referred to in section 32(i)(i) or any loss carried forward under section 112(1) or 113(2) or 115(1) or the deductions under Chapter VIII;
- (b) “average adjusted total income” means,—
- (i) if the assessee is assessable for each of the three tax years immediately preceding the relevant tax year, the arithmetic mean of his adjusted total income over those three tax years;
- (ii) if the assessee is assessable only for two of the said three tax years, the arithmetic mean of his adjusted total income over those two tax years;
- (iii) if the assessee is assessable only for one of the said three tax years, his adjusted total income for that tax year;
- (c) “head office expenditure” means executive and general administration expenditure incurred by the assessee outside India, including expenditure incurred in respect of—
- (i) rent, rates, taxes, repairs or insurance of any premises outside India used for the business or profession;
- (ii) salary, wages, annuity, pension, fees, bonus, commission, gratuity, perquisites or profits in lieu of, or in addition to, salary, whether paid or allowed to any employee or other person employed in, or managing the affairs of, any office outside India;
- (iii) travelling by any employee or other person employed in, or managing the affairs of, any office outside India; and
- (iv) such other matters connected with executive and general administration, as prescribed.
FAQs on Section 60 of Income Tax Act 2025
1. What is Section 60 of the Income Tax Act, 2025 about?
Section 60 provides the framework for allowing deductions for head office expenditure incurred by non-resident assessees that are attributable to their business or profession in India.
2. Who is eligible for deduction under Section 60?
Only non-resident assessees are eligible to claim deductions for head office expenditure under this section.
3. What type of expenditure qualifies as “head office expenditure”?
Head office expenditure refers to executive and general administration costs incurred outside India. This includes rent, salaries, travel, and other prescribed administrative expenses.
4. Is the deduction under Section 60 unconditional?
No, the deduction is subject to the conditions and limits prescribed in Section 60(2).
5. What is the maximum limit of deduction allowed under Section 60(2)?
The deduction is restricted to 5% of the adjusted total income, or in the case of a loss, 5% of the average adjusted total income of the assessee.
6. What happens if the assessee has incurred a loss in the relevant tax year?
In such cases, the deduction is limited to 5% of the average adjusted total income over the preceding tax years, as per Section 60(2)(a).
7. How is “adjusted total income” defined in this section?
Adjusted total income is the total income computed without considering certain specified allowances, deductions, and carried forward losses.
8. What is “average adjusted total income”?
It is the arithmetic mean of adjusted total income of the assessee for the past three (or fewer) tax years preceding the relevant tax year, depending on the number of years the assessee was assessable.
9. If the assessee was assessable for only one year out of the past three, how is average adjusted total income calculated?
In that case, the average adjusted total income will be equal to the adjusted total income of that one year.
10. Are there any specific types of head office expenses listed in the section?
Yes, the section lists expenses such as rent, salaries, travel expenses, and other prescribed general administrative costs incurred outside India.
11. Can deductions be claimed for salaries paid to employees outside India?
Yes, if the salaries are paid to employees managing the affairs of the office outside India, they are included in head office expenditure.
12. Can the deduction be claimed for expenses incurred in India?
No, only expenditures incurred outside India for executive and general administration are covered.
13. Does Section 60 override any other sections?
Yes, it applies “irrespective of anything to the contrary” contained in Sections 26 to 54 of the Act.
14. Are deductions under Section 32(i)(i) or Chapter VIII considered while computing adjusted total income?
No, adjusted total income must be computed without considering such deductions.
15. What if a non-resident has no income or loss in India—can they still claim deduction?
Yes, but the deduction will be limited to 5% of the average adjusted total income, even if the income is a loss.
16. Is the definition of head office expenditure exhaustive?
No, while some categories are specifically mentioned, the Act allows for other prescribed expenses connected to executive and general administration.
17. Are there rules or notifications expected to prescribe additional head office expenditures?
Yes, clause (iv) of Section 60(3)(c) allows for the inclusion of other prescribed matters, which may be notified by the tax authorities.
18. From when is Section 60 applicable?
It is applicable with effect from 1st April 2026, as per the Income Tax Act, 2025.
19. What if the non-resident operates through a branch or liaison office in India?
Such offices may still qualify for the deduction under Section 60, provided the expenses are head office-related and meet the specified conditions.
20. Is documentation required to support the claim under Section 60?
Yes, like all deductions, adequate documentation and evidence of expenditure would be essential for assessment purposes.
Section 60 of the Income Tax Act, 2025 (effective from 1st April 2026) allows non-resident assessees to claim a deduction for head office expenditure attributable to their business or profession in India, subject to certain limits. The deduction is capped at 5% of the adjusted total income, or in the case of a loss, 5% of the average adjusted total income over up to three preceding tax years.
“Head office expenditure” includes administrative costs incurred outside India, such as rent, salaries, and travel expenses. The section overrides other provisions and defines “adjusted total income” by excluding specific deductions and carried-forward losses.
