MUMBAI: The Finance Bill handed by means of the Lok Sabha on Friday has higher the withholding tax charge beneath the Income Tax (IT) Act on royalties and charges for technical products and services (fts) paid to non-resident entities from 10% to twenty%.
Indian subsidiaries remit vital sums as royalty or FTS to their out of the country father or mother or associate entity to be used of the worldwide logo or beneath licensing agreements for technical knowhow. Even Indian corporations make such bills to non-affiliated events once they procure, say, licensing rights.
When such fee is made, tax is needed to be withheld, which now stands at 20% beneath India’s home tax regulation. The prices for the Indian birthday party may pass up if they’re grossing up the withholding taxes (in different phrases, they’re bearing the tax value).
While the international entity this is receiving the royalty or FTS source of revenue can go for the decrease charge prescribed within the tax treaty, it’ll lead to larger compliance duties for each the Indian payer and international recipient. For example, the tax treaty on royalty and FTS beneath the India-Singapore tax treaty is 10%, and that beneath the India-US tax treaty is in most cases 15%.
EY-India affiliate spouse Sheetal Shah stated, “Foreign companies earning royalty or FTS were not required to file tax returns in India if the income was subject to tax at a rate not lower than that specified in section 115A. With increase in the domestic tax rate to 20%, foreign entities are likely to fall back on the lower rates prescribed in the respective tax treaties. This will result in increased compliance for them, such as obtaining PAN, filing tax returns in India, obtaining tax residency certificates for claiming tax treaty benefits, et al.”
KPMG India spouse & nationwide head (BFSI – Tax) Sunil Badala agreed that, whilst treaty provisions will also be resorted to, in an effort to scale back the tax burden, a quite easy compliance provision would have a tendency to get sophisticated as further assessments for treaty entitlement would must be tested.
Shah identified that from a risk-mitigation point of view, it’s most likely that the Indian payer may additionally wish to manner tax government to acquire a decrease withholding tax order.
Indian subsidiaries remit vital sums as royalty or FTS to their out of the country father or mother or associate entity to be used of the worldwide logo or beneath licensing agreements for technical knowhow. Even Indian corporations make such bills to non-affiliated events once they procure, say, licensing rights.
When such fee is made, tax is needed to be withheld, which now stands at 20% beneath India’s home tax regulation. The prices for the Indian birthday party may pass up if they’re grossing up the withholding taxes (in different phrases, they’re bearing the tax value).
While the international entity this is receiving the royalty or FTS source of revenue can go for the decrease charge prescribed within the tax treaty, it’ll lead to larger compliance duties for each the Indian payer and international recipient. For example, the tax treaty on royalty and FTS beneath the India-Singapore tax treaty is 10%, and that beneath the India-US tax treaty is in most cases 15%.
EY-India affiliate spouse Sheetal Shah stated, “Foreign companies earning royalty or FTS were not required to file tax returns in India if the income was subject to tax at a rate not lower than that specified in section 115A. With increase in the domestic tax rate to 20%, foreign entities are likely to fall back on the lower rates prescribed in the respective tax treaties. This will result in increased compliance for them, such as obtaining PAN, filing tax returns in India, obtaining tax residency certificates for claiming tax treaty benefits, et al.”
KPMG India spouse & nationwide head (BFSI – Tax) Sunil Badala agreed that, whilst treaty provisions will also be resorted to, in an effort to scale back the tax burden, a quite easy compliance provision would have a tendency to get sophisticated as further assessments for treaty entitlement would must be tested.
Shah identified that from a risk-mitigation point of view, it’s most likely that the Indian payer may additionally wish to manner tax government to acquire a decrease withholding tax order.
