India

Corporate - Withholding taxes

Last reviewed - 14 May 2020

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 (6)
Non-specified type of interest 5,000 (2) 10
Professional service 30,000 10 (8)
Technical service 30,000 2
Royalty or FTS 30,000 10 (7)
Royalty for sale, distribution, or exhibition of cinematographic films 30,000 2
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 5 million 5
Dividend income on shares 5,000 10
Dividends for units of mutual fund 5,000 10
Purchase of immovable property 5 million 1
Cash withdrawal from bank or banking company (3) 10 million 2
Payments to an e-commerce participant, in relation to sale of goods or services facilitated by e-commerce operator through digital platform (4) - 1 (5)

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 or deposit with post office, for which it is INR 10,000. This threshold limit is increased to INR 50,000 in case of interest provided by a co-operative society, and INR 40,000 if recipient of interest is a senior citizen (i.e. age of more than 60 years).
  3. Where the cash has been withdrawn by any person who has not filed return of income for three immediately preceding financial years, the threshold of INR 10 million will be read as INR 2 million and tax shall be deducted at 2% on amount exceeding INR 2 million but not exceeding INR 10 million and 5% on amount above INR 10 million.
  4. WHT obligations will not arise in case of individual or HUF where transaction value does not exceed INR 0.5 million, provided such individual or HUF furnishes its PAN/Aadhar. This provision is applicable with effect from 1 October 2020. Further, payments covered under this provision shall not be doubly taxed under any other provision of the tax law.
  5. 5% in case PAN/Aadhar is not available.
  6. Interest under Government of India saving (taxable) bonds, 2018 is allowed as a deduction at the time of making payment of interest on such bonds to residents. The threshold limit is less than or equal to INR 10,000.
  7. 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. Further amendment in definition of royalty is brought in by Finance Act, 2020 to include consideration for sale, distribution, or exhibition of cinematographic films within its ambit.
  8. 2% in case the company is engaged in business of operation of call centres.

Application for permanent account number (PAN)

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

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

Payments 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
Interest payable on long-term bonds listed on IFSC 4
Non-specified type of interest 20
Royalty and technical fees 10
Dividend income 20
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 received on or after 1 April 2020 is now taxable in the hands of the unit-holders.
  • Dividends received from Indian companies prior to 1 April 2020 are tax-free in the hands of the shareholder. Any dividends received post 1 April 2020 are chargeable in the hands of the non-resident shareholder at the rate of 20% or treaty rate, whichever is beneficial.
  • 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).
  • Where taxes are withheld as per the rates provided above with respect to dividend, interest, royalty, or FTS and there is no other income chargeable to tax in the hands of the non-resident, then compliance obligations relating to filing of return of income by such non-resident in India are not required.

Tax collection at source on sale of goods

The Finance Act, 2020 has introduced provisions for tax collection at source for sale of goods at the rate of 0.1% on transactions for sale of goods exceeding INR 5 million. This shall not be applicable where turnover of the seller in the year does not exceed INR 100 million. Further, where PAN/Aadhar is not provided by buyer, tax shall be collected at the rate of 1%. This provision will not apply where seller exports goods out of India or buyer is importing goods into India or the said transaction is already covered under any other provision of tax laws.

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.
  • With effect from 1 April 2020, equalisation levy is extended to include transactions where consideration exceeding INR 20 million is received/receivable by a non-resident ‘e-commerce operator’ for ‘e-commerce supply or services’ made/provided/facilitated on or after 1 April 2020. Rate of equalisation levy on such transactions shall be at the rate of 2%. This shall include the following transactions where services are provided by e-commerce operator to:
    • a person resident in India
    • a non-resident in specified circumstances, or
    • a person who buys goods/services using an IP address located in India.
  • Due date for deposit: Seventh day of the following month.
  • Interest at the rate of one percent for every month shall be payable where the equalisation levy collected is not credited within the due date of payment.
  • Penalty will be levied for failure to withhold or deposit equalisation 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.
    • 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 (10) Fee for technical services (10)
Non-treaty 10 20 10 10
Treaty:        
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 (4)
Belarus 10 (7)/15 10 15 15
Belgium 15 10 (9)/15 10 10
Bhutan 10 10 (19) 10 10
Botswana 7.5 (7)/10 10 10 10
Brazil 15 15 (19) 25 (13)/15 15
Bulgaria 15 15 (19) 15 (6)/20 20
Canada 15 (3)/25 15 (19) 10 (2)/15 10 (2)/15
China (People’s Republic of China) 10 10 (19) 10 10
Chinese Taipei (Taiwan) 12.5 10 10 10
Colombia 5 10 10 10
Croatia 5 (15)/15 10 10 10
Cyprus 10 10 (19) 10 10
Czech Republic 10 10 (19) 10 10
Denmark 15 (7)/25 10 (9)/15 20 20
Egypt N/A (4) N/A (4) N/A (4) N/A (4)
Estonia 10 10 10 10
Ethiopia 7.5 10 10 10
Fiji 5 10 (19) 10 10
Finland 10 10 10 10
France 10 (5) 10/15 (5) 20 (5) 10 (5)
Georgia 10 10 10 10
Germany 10 10 (19) 10 10
Greece N/A (12) N/A (12) N/A (12) N/A (4)
Hong Kong (entered into force) 5 10 10 10
Hungary 10 (5) 10 (5, 19) 10 (5) 10 (5)
Iceland 10 10 10 10
Indonesia 10 10 (19) 10 N/A (4)
Ireland 10 10 (19) 10 10
Israel 10 10 10 10
Italy 15 (3)/25 15 (19) 20 20
Japan 10 10 10 10
Jordan 10 10 20 20
Kazakhstan 10 10 (19) 10 10
Kenya 10 10 (19) 10 10
Korea, Republic of 15 10 10 15
Kuwait 10 10 10 10
Kyrgyz Republic 10 10 15 15
Latvia 10 10 10 10
Libya N/A (12) N/A (12) N/A (12) N/A (4)
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 (19) 10 10
Mauritius 5 (3)/15 7.5 (12) 15 N/A (4)
Mexico 10 10 10 10
Mongolia 15 15 15 15
Montenegro 5 (7)/15 10 10 10
Morocco 10 10 (19) 10 10
Mozambique 7.5 10 10 N/A (4)
Myanmar 5 10 10 N/A (4)
Namibia 10 10 10 10
Nepal 5 (3)/10 10 15 N/A (4)
Netherlands 10 (5) 10 10 10
New Zealand 15 10 (19) 10 10
Norway 10 10 10 10
Oman 10 (3)/12.5 10 (19) 15 15
Philippines 15 (3)/20 10 (11)/15 15 (20) N/A (4)
Poland 10 10 15 15
Portugal 10 (7)/15 10 10 10
Qatar 5 (3)/10 10 10 10
Romania 10 10 10 10
Russian Federation 10 10 (19) 10 10
Saudi Arabia 5 10 10 N/A (4)
Serbia 5 (7)/15 10 10 10
Singapore 10 (7)/15 10 (9)/15 10 10
Slovenia 5 (3)/15 10 10 10
South Africa 10 10 10 10
Spain 15 15 (19) 10 (5)/20 20 (5)
Sri Lanka 7.5 10 10 10 (5)
Sudan 10 10 10 10
Sweden 10 (5) 10 (5, 19) 10 (5) 10 (5)
Switzerland 10 10 10 10
Syria 5 (3)/10 10 10 N/A (4)
Tajikistan 5 (3)/10 10 10 N/A (4)
Tanzania 5 (3)/10 10 10 N/A (14)
Thailand 10 10 (19) 10 N/A (4)
Trinidad & Tobago 10 10 10 10
Turkey 15 10 (9)/15 15 15
Turkmenistan 10 10 10 10
Uganda 10 10 10 10
Ukraine 10 (7)/15 10 10 10
United Arab Emirates 10 5 (9)/12.5 10 N/A (4)
United Kingdom 10/15 (16) 10 (11)/15 10 (2)/15 10 (2)/15
United States 15 (3)/25 10 (17)/15 10 (18)/15 10 (18)/15
Uruguay 5 10 10 10
Uzbekistan 10 10 10 10
Vietnam 10 10 (19) 10 10
Zambia 5 (8)/15 10 10 N/A (4)

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 the use of or right to use any industrial, commercial, or scientific equipment; and in other cases:
    1. During the first five years of the agreement:
      • 15% if the payer is the government or specified organisation.
      • 20% in any other case.
    2. 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. In absence of specific provision, it may be treated as business profits or independent personal services under respective treaties, whichever is applicable.
  5. 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.
  6. If royalty relates to copyrights of literary, artistic, or scientific work.
  7. If at least 25% of capital is owned by the beneficial owner (company) of the company paying the dividend.
  8. If at least 25% of capital is owned by the company during at least six months before date of payment.
  9. If paid on a loan granted by a bank/financial institution.
  10. 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.
  11. If interest is received by a financial institution.
  12. Taxable in the country of source as per domestic tax rates.
  13. If royalty payments arise from the use or right to use trademarks.
  14. 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.
  15. 5% if the beneficial owner is a company holding at least 10% of share capital; 15% in other cases.
  16. 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.
  17. 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).
  18. 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.
  19. Dividend/interest earned by the government and certain institutions, like the Reserve Bank of India, is exempt from taxation in the country of source.
  20. If it's 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 People Democratic Republic of Yemen
Ethiopia Maldives Yemen Arab Republic
Iran Pakistan  

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 Macau 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