Beruflich Dokumente
Kultur Dokumente
What is the proposed amendment? If tax is withheld at a higher rate, what is the
The Finance (No.2) Bill, 2009 proposes to insert section option for foreign companies?
206AA in the Income-tax Act, 1961. The proposed Foreign companies can file a return of income and claim
section 206AA provides that every recipient is required refund of the tax withheld in excess of the rate specified
to furnish its Permanent Account Number [PAN] i.e. tax in the Finance Act or the tax treaty. To file a return of
registration number to the payer. If the payment attracts income, foreign companies will be required to obtain
withholding tax and PAN is not so furnished by the PAN. Broadly speaking, the income-tax authorities have
recipient, tax is required to be withheld at the higher of time of two years from the end of the relevant financial
the following rates: year (1 April to 31 March) to issue the refund.
i) Rate specified in the relevant section1;
ii) Rates in force (rate specified in the Finance Act or How will the proposed amendment impact the
under the tax treaty); payer Indian companies?
iii) Rate of 20%. In many contracts, an Indian company is required to
bear the foreign company’s income-tax liability in India.
In addition to the above, the income-tax authorities will Such a foreign company would typically be reluctant to
not entertain an application from the recipient for a obtain a PAN and / or file an Indian income-tax return.
lower withholding tax rate. Moreover, the PAN is In this scenario, considering the provisions of the
required to be indicated in all correspondence, bills, proposed amendment and the grossing-up provisions,
vouchers and other documents exchanged between the the cost for the Indian companies would typically be
recipient and payer. 125% of the contracted amount.
1
No specific rate is indicated in section 195 relating to payments to foreign companies
2
For agreements entered into on or after 1 June 2005, subject to satisfaction of prescribed conditions
3
The proposed provision has the effect of indirectly overriding the tax treaty, which is generally not in line with internationally accepted
principles
4
Foreign companies are required to inter alia file a return of income, undergo tax audit under section 44AB if turnover / gross receipts exceed
INR 4 million (business) / INR 1 million (profession) and comply with the transfer pricing provisions (including maintenance of documentation
and filing report in Form 3CEB)
This material is prepared by Deloitte Touche Tohmatsu India Private Limited (DTTIPL), a Company established under the
Indian Companies Act 1956, as amended.
DTTIPL is a member firm of Deloitte Touche Tohmatsu, a Swiss Verein, whose member firms are legally separate and
independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche
Tohmatsu and its member firms.
This material and the information contained herein is intended to provide general information on a particular subject or
subjects and is not an exhaustive treatment of such subject(s). Accordingly, the information in this material is not intended
to constitute accounting, tax, legal, investment, consulting, or other professional advice or services. The information is not
intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making any
decision or taking any action that might affect your personal finances or business, you should consult a qualified professional
adviser. None of Deloitte Touche Tohmatsu, its member firms, or its and their respective affiliates shall be responsible for any
loss whatsoever sustained by any person who relies on these materials and the information contained therein.
This material is intended only for the use of the entity/person to whom it is addressed and the others authorized to receive it
on their behalf. The recipient is strictly prohibited from further circulation of this material.