Income Tax Department Probes 40 Chinese Solar Firms

In a bid to reduce Chinese imports, India imposed 40 percent Basic Customs Duty (BCD) on solar modules and 25 percent on solar cells in April 2022.

October 18, 2023. By Anurima Mondal

Around 40 Chinese solar module manufacturers are currently under investigation by Indian tax authorities for suspected tax evasion along with their Indian distributors. The scrutinizing of business operations, transactions and permanent establishment (PE) status are critical factors for determining tax liabilities for foreign firms in India.

A foreign entity conducting business in India through a PE may be subject to taxes on the profits generated whereas there is no tax liability in the country in the absence of a PE as no income is deemed to accrue. With the solar modules constituting more than 60 percent of the total project cost, such inquiries are essential. This may, however, strain India’s relations with China.

In a bid to reduce Chinese imports, India imposed 40 percent Basic Customs Duty (BCD) on solar modules and 25 percent on solar cells in April 2022. However, India's imports of solar cells and modules from China have continued to rise. Meanwhile, in 2020, India made government approval mandatory for all FDI from border-sharing countries including China.

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Chinese solar firms under tax scrutiny

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