India: Withholding tax rates, treatment of payments under tax treaties

India: Withholding tax rates

The KPMG member firm in India has prepared reports about the following tax developments (read more at the hyperlinks provided below).

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  • Higher tax rate not applied when tax is withheld under tax treaty: The Ahmedabad Bench of the Income-tax Appellate Tribunal held that when the tax has been withheld (“deducted”) pursuant to provisions of tax treaties, the provisions of Section 206AA of the Income-tax Act, 1961 cannot be invoked. Section 90(2) of the Income-tax Act, 1961 provides that provisions of the Income-tax Act, 1961 apply to the extent they are more beneficial to the taxpayer. Since the taxpayer had withheld tax at source at the rates prescribed under the tax treaties, a higher rate of tax under Section 206AA cannot be invoked. The case is: Uniphos Environtronic (P.) Ltd. Read a March 2017 report [PDF 339 KB]
  • “Retention money” not regarded as income under minimum alternate tax: The Kolkata Bench of the Income-tax Appellate Tribunal held that retention money is not in the nature of income until such time that the taxpayer performs the contractual obligations to the satisfaction of the customer. On the date when the bills were submitted, having regard to the nature of the contract, no enforceable liability accrued or arose, and the taxpayer had no right to receive the entire amount on the completion of the work or upon submission of the bills. Therefore, retention money cannot be regarded as income for computing minimum alternate tax. The case is: Mcnally Bharat Engg. Co. Ltd. Read a March 2017 report [PDF 348 KB]
  • Payments to foreign entities under India-Belgium income tax treaty: The Ahmedabad Bench of the Income-tax Appellate Tribunal held that payments made to Belgian entities are not taxable as “fees for technical services” in view of the most favoured nation clause under the India-Belgium income tax treaty. The case is: Cadila Health Care Ltd. Read a March 2017 report [PDF 364 KB]

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