Tds on reimbursement

[Gopalarathnam Muralidharan]

This question relates to Sec40(a)(1a) read with Section 195. Holding company situated outside India, takes a global insurance policy for all its subsidiaries. The cost of premium paid is apportioned to its various subsidiaries on the basis of the turnover of the respective subsidiaries. Reimbursements are absolutely on cost to cost basis and no element of profit is embedded in the transaction. Whether this transaction would fall within the purview of Section 195 and consequent disallowance for non deduction of TDS

[Surender Gupta]

The provisions of section 195 regarding TDS / withholding tax are applicable only if such sum is taxable in India under the provisions of Income Tax Act, 1961. Therefore, it is the nature of payment by the subsidiaries in India to Holding company outside India would determine the next course of action. I think you may find it difficult to claim such payment as reimbursement of expenses as AO my ask that what what is reimbursement into this transaction. Holding company took the insurance policy to secure its own interest. To what extent the subsidiary company in interest into the insurance policy taken by the holding company? Therefore, if it is considered as reimbursement of expenses which is not taxable in India, there is tds or withholding tax such payment.

[Gopalarathnam Muralidharan]

Thanks for your reply. The benefit derived by the subsidiary on the payment of global insurance policy, subsidiary in India is insured for third party risk and other business risks. Global insurance premia is paid for securing an economy in the large premia paid. Hence subsidiary definitely derives a risk coverage and the reimbursement is on cost to cost basis. Under these circumstances, no element of profit is embedded in the transaction, hence not liable for TDS. Can u please confirm my stand

[Anuj Gupta]

In my personal view if the foreign insurance company doesnot have any PE in India then the sum so reimbursed shall not be taxable in India and hence no TDS requirement shall be there.

AI Summary

TDS on cross-border reimbursements may apply only if the payment is taxable in India under Section 195. Whether reimbursements by Indian subsidiaries to a foreign holding for apportionment of a global insurance premium attract withholding under Section 195 depends on whether the sums are taxable in India and on the commercial characterisation of the payments; genuine cost-to-cost reimbursements for risk coverage that do not constitute income chargeable in India do not require withholding, whereas recharacterisation by tax authorities or a taxable presence of the foreign recipient may give rise to withholding obligations.