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India Corporate - Withholding taxes

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There is an obligation on the payer (either resident or non-resident) of income to withhold tax when certain specified payments are credited and/or paid. Some of the expenses that require WHT are as follows.

Payments to resident companies

Nature of payment

Payment threshold for WHT (INR) (1)

WHT rate (%)

Specified type of interest

None

10

Non-specified type of interest

5,000 (2)

10

Professional or technical service

30,000

10*

Commission and brokerage

5,000

5

Rent of plant, machinery, or equipment

180,000

2

Rent of land, building, or furniture

180,000

10

Contractual payment (except for individual/HUF)

30,000 (single payment) 100,000 (aggregate payment)

2

Contractual payment to individual/HUF

30,000 (single payment) 100,000 (aggregate payment)

1

Payments by individual/HUF not covered under sections 194C/194H/194J

50,00,000

5

Royalty or fees for technical services

30,000

10

Deemed dividend

2,500

10

Purchase of immovable property

50,00,000

1

* 2% in case the company is engaged in business of operation of call centres.

Notes

  1. Payments have different threshold limits. The payer is only required to withhold tax if the total payment within a tax year to a single person (except where specified otherwise) is above the limits specified above.
  2. The threshold limit for WHT for non-specified type of interest is INR 5,000 except in the case of interest received from a bank, co-operative society, or deposit with post office, for which it is INR 10,000. This threshold limit is increased to INR 50,000 if recipient of interest is a senior citizen (i.e. age of more than 60 years)
  3. Interest under Government of India saving (taxable) bonds, 2018 allowed for deduction at time of making payment of interest on such bonds to residents. The threshold limit is less than or equal to INR 10,000.
  4. The definition of ‘royalty’ also includes consideration for use of, or right to use, computer software. Transfer of all or any rights in respect of any right, property, or information includes transfer of all or any right to use computer software (including granting of a licence), irrespective of the medium through which such a right is transferred and irrespective of whether any right or property is located in India. Hence, while applying WHT on such payments in the nature of royalty, one needs to consider the definition of royalty as amended by the Finance Act, 2012 with retrospective effect from 1 June 1976.

Application to PAN

Every person (not being an individual) who enters into financial transaction of an amount aggregating to INR 250,000 or more shall be required to apply to tax officer for a permanent account number (PAN).

If the PAN of the deductee is not quoted, the rate of WHT will be the rate specified in relevant provisions of the Act, the rates in force, or the rate of 20%, whichever is higher.

Payment to non-resident companies

Nature of payment

WHT rate (%)

Interest on foreign currency (subject to conditions)

5

Interest on money borrowed in foreign currency under a loan agreement or by way of long-term infrastructure bonds (or rupee denominated bonds)

5

Interest on investment in long-term infrastructure bonds issued by Indian company (rupee denominated bonds or government security)

5

Non-specified type of interest

20

Royalty and technical fees

10

Long-term capital gains other than equity shares of a company or units of equity oriented fund/ business trust on which STT is paid

20

Long-term capital gains on equity shares of a company or units of equity oriented fund/ business trust on which STT is paid

10

Income by way of winning from horse races

30

Other income

40

Notes

  • Percentage to be increased by a surcharge and health and education cess to compute the effective rate of tax withholding.
  • Income from units of specified mutual funds is exempt from tax in the hands of the unit-holders.
  • Dividends received from Indian companies are tax-free in the hands of the shareholder.
  • Short-term capital gains on transfer of shares of a company or units of an equity-oriented fund would be taxable at 15% if they have been subjected to STT.
  • There is no threshold for payment to non-resident companies up to which no tax is required to be withheld.
  • If the PAN of the deductee is not quoted, the rate of WHT will be the rate specified in relevant provisions of the Act, the rates in force, or the rate of 20%, whichever is higher. The government has notified rules that do not mandate quoting of PAN, subject to certain conditions.
  • The payer is obligated to report specific information in the prescribed form (whether or not such payment is chargeable to tax).

Equalisation levy

Action Plan 1 (Digital Economy) of the OECD’s BEPS project discussed several options to tackle direct tax challenges in the digital environment. Taking cues from this, an equalisation levy is available, the summary of which is as follows:

  • Rate of levy: 6% of the amount of consideration for specified service.
  • Meaning of ‘specified service’: Online advertisement, any provision for digital advertising space, or any other facility or service for the purpose of online advertisement, which includes any other service as may be notified by the Central Government in this regard.
  • On whom: Non-resident receiving consideration for specified services from:
    • a person resident in India and carrying on business or profession; or
    • a non-resident having a PE in India.
  • Exemption from income tax: The income arising to the non-resident from the specified service and chargeable to an equalisation levy will be exempt from income tax.
  • Due date for deposit: 7th day of the following month.
  • Interest at the rate of one percent for every month shall be payable where the equalization levy collected is not credited within the due date of payment.
  • Penalty will be levied for failure to withhold or deposit equalization levy or failure to furnish statement.
  • Non-applicability in specified cases: Equalisation levy will not be charged in the following cases:
    • The non-resident providing specified service has a PE in India and the specified service is effectively connected with the PE.
    • The aggregate consideration received or receivable in the previous year by the non-resident does not exceed INR 100,000; or
    • The payment for the specified service by the Indian resident or PE is not for conducting business or a profession in India.

Treaty rates

Some tax treaties provide for lower WHT rates from certain types of income, as follows:

Recipient

WHT (%)

Dividend (1)

Interest

Royalty (12)

Fee for technical services (12)

Non-treaty

10

20

10

10

Treaty: (8)

 

 

 

 

Albania

10

10

10

10

Armenia

10

10

10

10

Australia

15

15

10 (2)/15

10 (2)/15

Austria

10

10

10

10

Bangladesh

10 (3)/15

10

10

N/A (5)

Belarus

10 (9)/15

10

15

15

Belgium

15

10 (11)/15

10

10

Bhutan

10

10(21)

10

10

Botswana

7.5 (9)/10

10

10

10

Brazil

15

15(21)

25 (15)/15

15

Bulgaria

15

15(21)

15 (7)/20

20

Canada

15 (3)/25

15(21)

10 (2)/15

10 (2)/15

China (People’s Republic of China)

10

10(21)

10

10

Chinese Taipei (Taiwan)

12.5

10

10

10

Colombia

5

10

10

10

Croatia

5(17)/15

10

10

10

Cyprus

10

10(21)

10

10

Czech Republic

10

10(21)

10

10

Denmark

15 (9)/25

10 (11)/15

20

20

Egypt

N/A (5)

N/A (5)

N/A (5)

N/A (5)

Estonia

10

10

10

10

Ethiopia

7.5

10

10

10

Fiji

5

10(21)

10

10

Finland

10

10

10

10

France

10 (6)

/10/15 (6)

20 (6)

10 (6)

Georgia

10

10

10

10

Germany

10

10(21)

10

10

Greece

N/A (14)

N/A (14)

N/A (14)

N/A (5)

Hungary

10 (6)

10 (6)(21)

10 (6)

10 (6)

Hong Kong (Entered into force)

5

10

10

10

Iceland

10

10

10

10

Indonesia

10

10(21)

10

N/A (5)

Ireland

10

10(21)

10

10

Israel

10

10

10

10

Italy

15 (3)/25

15(21)

20

20

Japan

10

10

10

10

Jordan

10

10

20

20

Kazakhstan

10

10(21)

10

10

Kenya

10

10(21)

10

10

Korea, Republic of

15

10

10

15

Kuwait

10

10

10

10

Kyrgyz Republic

10

.

15

15

Latvia

10

10

10

10

Libya

N/A (14)

N/A (14)

N/A (14)

N/A (5)

Lithuania

5 (3)/15

10

10

10

Luxembourg

10

10

10

10

Macedonia

10

10

10

10

Malaysia

5

10

10

10

Malta

10

10(21)

10

10

Mauritius

5 (3)/15

7.5 (14)

15

N/A (5)

Mexico

10

10

10

10

Mongolia

15

15

15

15

Montenegro

5 (9)/15

10

10

10

Morocco

10

10(21)

10

10

Mozambique

7.5

10

10

N/A (5)

Myanmar

5

10

10

N/A (5)

Namibia

10

10

10

10

Nepal

5 (3)/10

10

15

N/A (5)

Netherlands

10 (6)

10

10

10

New Zealand

15

10(21)

10

10

Norway

10

10

10

10

Oman

10 (3)/12.5

10(21)

15

15

Philippines

15 (3)/20

10 (13)/15

15(22)

N/A (5)

Poland

10

10

15

15

Portugal

10 (9)/15

10

10

10

Qatar

5 (3)/10

10

10

10

Romania

10

10

10

10

Russian Federation

10

10(21)

10

10

Saudi Arabia

5

10

10

N/A (5)

Serbia

5 (9)/15

10

10

10

Singapore

10 (9)/15

10 (11)/15

10

10

Slovenia

5 (3)/15

10

10

10

South Africa

10

10

10

10

Spain

15

15(21)

10 (6)/20

20 (6)

Sri Lanka

7.5

10

10

10 (6)

Sudan

10

10

10

10

Sweden

10 (6)

10 (6)(21)

10 (6)

10 (6)

Switzerland

10

10

10

10

Syria

5 (3)/10

10

10

N/A (5)

Tajikistan

5 (3)/10

10

10

N/A (5)

Tanzania

5 (3)/10

10

10

N/A (16)

Thailand

10

10(21)

10

N/A (5)

Trinidad & Tobago

10

10

10

10

Turkey

15

10 (11)/15

15

15

Turkmenistan

10

10

10

10

Uganda

10

10

10

10

Ukraine

10 (9)/15

10

10

10

United Arab Emirates

10

5 (11)/12.5

10

N/A (5)

United Kingdom

10/15(18)

0/10 (13)/15

(2)

(2)

United States

15(3)/25

10(19)/15

10(20)/15

10(20)/15

Uruguay

5

10

10

10

Uzbekistan

10

10

10

10

Vietnam

10

10(21)

10

10

Zambia

5 (10)/15

10

10

NA(5)

Notes

  1. The treaty tax rates on dividends are not relevant since, under the current Indian tax legislation, most dividend income from Indian companies that is subject to DDT is exempt from income tax in the hands of the recipient.
  2. 10% for use or right to use any industrial, commercial or scientific equipment and in other cases:

    A) During the first five years of the agreement –

    • 15% if the payer is Government or specified organisation
    • 20% in any other case

    B) Subsequent years, 15% in all cases.

  3. If at least 10% of capital is owned by the beneficial owner (company) of the company paying the dividend or interest.
  4. If at least 20% of capital is owned by the beneficial owner (company) of the company paying dividend or interest.
  5. In absence of specific provision, it may be treated as business profits or independent personal services under respective treaties, whichever is applicable.
  6. The ‘most favoured nation’ clause is applicable. The protocol to the treaty limits the scope and rate of taxation to that specified in similar articles in treaties signed by India with an OECD-member country or another country.
  7. If royalty relates to copyrights of literary, artistic, or scientific work.
  8. If at least 25% of capital is owned by the beneficial owner (company) of the company paying the dividend.
  9. If at least 25% of capital is owned by the company during at least six months before date of payment.
  10. If paid on a loan granted by a bank/financial institution.
  11. The tax rate for royalties and fees for technical services, under the domestic tax laws, is 10%. This rate is to be increased by a surcharge at 2.5% on the income tax and education cess at 2% and secondary and higher secondary education cess at 1% on the income tax including surcharge. As a consequence, the effective tax rate is 10.558%. This rate applies for payments made under an agreement entered into on or after 1 June 2005. Accordingly, a tax resident can either use the treaty rate or domestic tax rate, whichever is more beneficial.
  12. If interest is received by a financial institution.
  13. Taxable in the country of source as per domestic tax rates.
  14. If royalty payments arise from the use or right to use trademarks.
  15. Tax treaties of certain countries do not have a separate clause specifying the WHT rate for fees for technical services and fees for included services.
  16. 5% if the beneficial owner is a company holding at least 10% of share capital; 15% in other cases.
  17. 15% of gross amount of dividend in case such dividend is paid out of income derived from immovable property and such income is exempt from tax. 10% in all other cases.
  18. 10% if such interest is paid on a loan granted by a bank carrying on a bona fide banking business or by a similar financial institution (including an insurance company).
  19. 10% if payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment and fee for included services that are ancillary and subsidiary to the enjoyment of the property for which payment is received.
  20. Dividend/interest earned by the Government and certain institutions like the Reserve bank of India is exempt from taxation in the country of source.
  21. If it is payable in pursuance of any collaboration agreement approved by the Government of India.

List of limited agreements between India and other countries

A list of the countries with which India has entered into limited agreements for double taxation relief with respect to income of airlines/merchant shipping, is given here.

Afghanistan

Lebanon

Pakistan

Ethiopia

Maldives

Yemen Arab Republic

Iran

People Democratic Republic of Yemen

 

Tax information exchange agreements (TIEAs) between India and other countries

A list of the countries with which India has entered into TIEAs for effective exchange of information relating to tax matters is given below. In addition, several of the comprehensive treaties signed by India have an information exchange clause that has the same effect as signing of a TIEA. These are not listed here.

Argentina

Gibraltar

Macao SAR

Bahamas

Guernsey

Maldives

Bahrain

Isle of Man

Saint Kitts and Nevis

Belize

Jersey

San Marino

Bermuda

Principality of Liechtenstein

Seychelles

British Virgin Islands

Principality of Monaco

Cayman Islands

Liberia

 


Last Reviewed - 20 December 2019

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