Withholding Tax

[Gopalarathnam Muralidharan]

Dear Sir

MD of private limited company in India holds 90 percent of the shares.   The same person holds more than 80 percent in a Dubai based company.   Now the Indian private limited co., wants to buy a plastic granules from a overseas supplier for which payments were made from Dubai.   Dubai company raises a debit note on the payment made on behalf of Indian co., Now the querry is

1) if the Indian company reimburses to the Dubai company on cost to cost basis without any element of profit,  whether any withholding tax requires to be deducted.    The company has not deducted tax on the ground, it involves purchase of goods and also no element of income is embedded.

2) If the Dubai based company charges Service charges, whether Indian co., while making payment to Dubai co., should deduct withholding tax on service charges alone

Pl clarify

Regards

G Muralidharan

[K.S.AIYAR & CO.]

In both cases answer is NO. 

In 1st case it is only reimbursement of payment made on behalf of Indian company by Dubai company so the transaction will not fall u/s 192 to 196D.

In 2nd case it will be for service (service charges for what is a question?) provided outside India so the payment to a non-resident will not fall u/s 195. 

AI Summary

Withholding tax obligations: cost reimbursements to nonresidents and service payments for services rendered outside India do not require deduction. A cost to cost reimbursement to a nonresident for payments made on behalf of an Indian company is a mere reimbursement and does not attract withholding obligations; similarly, payments characterized as service charges for services provided outside India to a nonresident do not require withholding under the provisions governing payments to nonresidents.