Section 60 · Computation of total income
Section 60 of the Income-tax Act, 2025 — Deduction of Head Office Expenditure for Non-Residents
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter IV
📜 What the law says — Section 60, 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).
(2) The deduction allowable under sub-section (1) shall be restricted—
(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.
(3) For the purposes of 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)(A) or
any loss carried forward under section 111(1) or 112(1) or 113(2) or
115(2) 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 imme-
diately 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 expendi-
ture 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;
(ii
In plain language
What Section 60 is about
Section 60 of the Income-tax Act, 2025 (effective 1 April 2026) places a cap on the amount of "head office expenditure" a non-resident can deduct against the profits of its Indian business or profession. It is the direct successor to Section 44C of the old Income-tax Act, 1961, and the rule is substantially unchanged.
When a foreign company or firm operates in India through a branch, project office or permanent establishment (PE), its overseas head office genuinely incurs some executive and general administration costs that benefit the Indian operation — salaries of global managers, foreign office rent, directors' travel, and so on. A share of these costs is allocated to India. Section 60 says that however large that allocation is, the deduction in India is ring-fenced to a formula-based ceiling. This stops profits being shifted out of India through inflated head-office charge-backs.
Who it applies to
- Only non-residents — foreign companies, foreign firms, and other non-resident assessees carrying on business or profession in India.
- Typically those operating through a branch or permanent establishment in India that files an Indian return.
- It does NOT apply to Indian residents or to a separately incorporated Indian subsidiary (a subsidiary is a resident company; its payments to a foreign parent are governed by transfer-pricing and Section 37 rules instead).
The core rule — deduction is the "least of"
The allowable head office expenditure deduction is restricted to the lower of the following two amounts:
- (a) The actual head office expenditure attributable to the Indian business or profession; and
- (b) 5% of the "adjusted total income" — or, where the adjusted total income is a loss (or nil), 5% of the "average adjusted total income".
Whichever is smaller is what you can claim. So even if the head office allocates ₹80 lakh to India, if 5% of adjusted total income works out to ₹50 lakh, the deduction is capped at ₹50 lakh.
Key definitions you must understand
- Head office expenditure = executive and general administration expenditure incurred by the assessee outside India, including (i) rent, rates, taxes, repairs or insurance of any premises outside India used for the business; (ii) salary, wages, pension, bonus, commission, gratuity and perquisites of employees managing an office outside India; (iii) travel of such employees; and (iv) other prescribed executive/administrative matters. Purely Indian expenses are not "head office expenditure" — they are deducted normally.
- Adjusted total income = total income computed under the Act before allowing the head office deduction itself, and added back for items such as unabsorbed depreciation, brought-forward business losses, brought-forward speculation and capital losses, and Chapter VIII / Chapter VI-A type deductions. This strips out loss carry-forwards to give a clean base for the 5% test.
- Average adjusted total income = the arithmetic mean (average) of the adjusted total income of the three preceding tax years (or fewer years if the assessee has been assessable for less than three years). This is used only when the current year's adjusted total income is a loss or nil.
How it interacts with other provisions
- Overrides normal deductibility: Even if a head office cost is otherwise a genuine, wholly-and-exclusively business expense under Section 37, the Section 60 ceiling still applies. The Supreme Court (under the equivalent old Section 44C) confirmed the cap applies to both common and exclusively-Indian foreign expenses.
- Non-obstante nature: Section 60 works notwithstanding the general profit-computation rules — it is a specific override for one category of expense.
- Transfer pricing: For associated-enterprise dealings, the amount must still be at arm's length; Section 60 then caps whatever survives that test.
Practical implications
- Maintain a clear allocation working showing how head office cost is apportioned to India (turnover-based or a reasonable key).
- Compute adjusted total income carefully — errors here directly change the 5% ceiling.
- In loss years, the deduction does not vanish — you fall back to 5% of the three-year average, which can still yield a deduction.
- Excess head office expenditure above the cap is permanently disallowed — it is not carried forward.
💡 Example
Example 1 — profit year. XYZ Bank (a non-resident) runs an Indian branch. Its adjusted total income for the year is ₹10 crore. The overseas head office allocates ₹65 lakh of executive and administration costs to the Indian branch. The 5% ceiling = 5% × ₹10 crore = ₹50 lakh. The deduction allowed is the least of ₹65 lakh (actual) and ₹50 lakh (5% cap) = ₹50 lakh. The remaining ₹15 lakh is disallowed and cannot be carried forward.
Example 2 — loss year. Suppose in the next year the branch has a loss, so adjusted total income is negative. Its adjusted total income over the three preceding years was ₹4 crore, ₹6 crore and ₹8 crore, giving an average of ₹6 crore. The ceiling = 5% × ₹6 crore = ₹30 lakh. If the actual head office allocation is ₹40 lakh, the deduction is capped at ₹30 lakh (the lower figure).
A relatable story. Think of a global consulting firm, "Meridian LLP", that opens a Mumbai branch. The London office bills Mumbai ₹90 lakh a year as "your share of global leadership and admin". Meridian's accountant is thrilled — that's a big deduction. But at return time she applies Section 60: Mumbai's adjusted total income is ₹12 crore, so the cap is ₹60 lakh. Despite London charging ₹90 lakh, only ₹60 lakh is deductible in India. She documents the allocation basis so that, if questioned, she can show the charge is genuine — but she accepts that ₹30 lakh is simply lost, by design of the law.
| Situation | Ceiling formula | Deduction allowed |
|---|
| Adjusted total income is a profit | 5% of adjusted total income | Least of: actual head office expenditure OR 5% of adjusted total income |
| Adjusted total income is a loss or nil | 5% of average adjusted total income (mean of 3 preceding years) | Least of: actual head office expenditure OR 5% of average adjusted total income |
| Actual expenditure below the 5% cap | Cap not binding | Full actual head office expenditure attributable to India |
| Excess over the cap | Permanently disallowed | No carry-forward of the disallowed portion |
Related sections
Section 44C (1961 Act) — the predecessor provision to Section 60 Section 33 — Depreciation and related allowances affecting adjusted total income Section 37 — General deduction for business expenditure Section 26 — Profits and gains of business or profession, charging provision Section 9 — Income deemed to accrue or arise in India for non-residents Section 6 — Residence in India (who is a non-resident)
Frequently asked questions
Does Section 60 apply to an Indian subsidiary of a foreign parent?
No. An Indian subsidiary is a resident company, so Section 60 does not apply to it. It applies to non-residents operating in India through a branch or permanent establishment. Payments by a subsidiary to a foreign parent are tested under transfer-pricing and general Section 37 rules instead.
What exactly is capped at 5%?
The deduction for head office expenditure — executive and general administration costs incurred outside India — is capped at 5% of adjusted total income. It does not cap purely Indian branch expenses, which are deducted normally.
What happens to head office expenditure that exceeds the 5% limit?
The excess is permanently disallowed. Unlike some losses and allowances, the disallowed portion of head office expenditure cannot be carried forward to future years.
How is the 5% ceiling calculated in a loss year?
When adjusted total income is a loss or nil, the ceiling becomes 5% of the average adjusted total income, which is the arithmetic mean of the adjusted total income of the three preceding tax years (or fewer if the entity has been assessable for less than three years).
Is Section 60 the same as the old Section 44C?
Yes, in substance. Section 60 of the Income-tax Act, 2025 carries forward the rule that was in Section 44C of the Income-tax Act, 1961, with the same 5% cap and 'least of' mechanism, effective from 1 April 2026.
Can a tax treaty (DTAA) override the Section 60 cap?
Where a DTAA and its non-discrimination or business-profits article are more beneficial, a non-resident can generally rely on the treaty. However, this is fact-specific and litigated; professional advice is recommended before overriding the domestic cap.
What is 'adjusted total income' for this section?
It is total income computed under the Act before allowing the head office deduction itself, and after adding back items like unabsorbed depreciation, brought-forward losses, and Chapter VI-A/VIII type deductions, giving a clean base for the 5% test.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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