New Delhi: A circular on taxing BPOs issued by the finance ministry on Monday clearly mentions that international firms' BPO operations will be put into the tax net.

The earlier distinction made between 'core' and 'non-core' services of BPOs is withdrawn. Now, the CBDT differentiates between the non-resident firm's 'business connection' with an Indian firm it outsources to, or not.

According to the circular 'If there is no business connection, the resident entity will not be a Permanent Establishment of the non-resident entity.' In such cases, the Indian BPO unit will be assessed to income tax as a 'separate entity'. If, however, the non-resident firm does have a 'business connection' with the resident Indian company, it would be treated as a Permanent Establishment of the non-resident entity. Once a unit is established as a PE, says the circular, 'The non-resident entity or the foreign company will be liable to tax in India.'