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MUMBAI: The Finance Bill handed by the Lok Sabha on Friday has elevated the withholding tax fee beneath the Income Tax (I-T) Act on royalties and costs for technical providers (FTS) paid to non-resident entities from 10% to twenty%.
Indian subsidiaries remit important sums as royalty or FTS to their abroad mum or dad or affiliate entity to be used of the worldwide model or beneath licensing agreements for technical knowhow. Even Indian firms make such funds to non-affiliate events once they procure, say, licensing rights.
When such fee is made, tax is required to be withheld, which now stands at 20% beneath India’s home tax legislation. The prices for the Indian get together may go up if they’re grossing up the withholding taxes (in different phrases, they’re bearing the tax price).
While the international entity that’s receiving the royalty or FTS earnings can go for the decrease fee prescribed within the tax treaty, it is going to end in larger compliance obligations for each the Indian payer and international recipient. For occasion, the tax treaty on royalty and FTS beneath the India-Singapore tax treaty is 10%, and that beneath the India-US tax treaty is often 15%.
EY-India affiliate accomplice 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 accomplice & nationwide head (BFSI – tax) Sunil Badala agreed that, whereas treaty provisions will be resorted to, as a way to scale back the tax burden, a comparatively easy compliance provision would are inclined to get sophisticated as extra checks for treaty entitlement must be examined.
Shah identified that from a risk-mitigation perspective, it’s seemingly that the Indian payer might also need to strategy tax authorities to acquire a decrease withholding tax order.
Indian subsidiaries remit important sums as royalty or FTS to their abroad mum or dad or affiliate entity to be used of the worldwide model or beneath licensing agreements for technical knowhow. Even Indian firms make such funds to non-affiliate events once they procure, say, licensing rights.
When such fee is made, tax is required to be withheld, which now stands at 20% beneath India’s home tax legislation. The prices for the Indian get together may go up if they’re grossing up the withholding taxes (in different phrases, they’re bearing the tax price).
While the international entity that’s receiving the royalty or FTS earnings can go for the decrease fee prescribed within the tax treaty, it is going to end in larger compliance obligations for each the Indian payer and international recipient. For occasion, the tax treaty on royalty and FTS beneath the India-Singapore tax treaty is 10%, and that beneath the India-US tax treaty is often 15%.
EY-India affiliate accomplice 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 accomplice & nationwide head (BFSI – tax) Sunil Badala agreed that, whereas treaty provisions will be resorted to, as a way to scale back the tax burden, a comparatively easy compliance provision would are inclined to get sophisticated as extra checks for treaty entitlement must be examined.
Shah identified that from a risk-mitigation perspective, it’s seemingly that the Indian payer might also need to strategy tax authorities to acquire a decrease withholding tax order.
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