Knocking off of withholding Tax

This query is : Resolved

Nitin Kapoor (Querist)
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20 November 2007 Hi All

Pls resolve my query and mail it to nitinkapoorca@gmail.com

My Query is that if a Company A situated in India is providing services to Company B in USA(New York)using the software manufactured by Company B. In a sense the company A in India is a debtor as well as creditor for Company B and vice Versa.

Now Company A in India has to pay withhoding Tax on payments made to Company B and since it is provising services it also recieves payments from Company B. The payments recieved in INDIA are much more than payments made to Company B.

QUERRY: Is there a possibility to knock off the payments receivable and payable between the companies to lessen the burden of withholding Tax???

Pls Reply

R.V.RAO

R.V.RAO (Expert)
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20 November 2007 UNDER THE RULES FOR WITHHOLDING TAXES, UNDER INDIAN INCOME TAX ACT,
IN RESPECT OF USA, IN THE CASE OF FEES FOR TECH. SERVICES THE RIGHT TO TAX IS AT THE SOURCE ( FROM WHEREVER IT GENERATES).
THE RATE OF TAX IS
a) 10% FOR RENTAL OF EQUIPMENT AND SERVICES PROVIDED ALONG WITH KNOWHOW AND TECH.services
b.) in any other case different slab rates for first 5 years and subsequent years depending on the payer being govt or not.( MAXIMUM OF 15% TO 20%)
NOW THE QUESTION OF KNOCKING OFF:THESE PAYMENTS MADE ABROAD AND REMITTANCES RECEIVED IN INDIA- BOTH ARE REFLECTED IN BANK STATEMENTS- AS PAID AND RECEIVED.
AS SAID ABOVE ,AS PER WITHHOLDING TAX RULES , THE RIGHT OF THE STATE TO TAX IS THE SOURCE. IN OTHERWORDS WHATEVER GROSS REMITTABLE TO YOU FROM USA IS AXED AT THE SOURCE ITSELF THERE. SO WHAT AND HOW TO KNOCK OFF?
SAME CASE IN INDIA.
BETTER WAY SEEMS TO UPPING THE ANTENNE,BILLING MORE TO THE EXTENT OF 15 TO 20%, TO TAKE CARE OF TAXES SO THAT EACH SIDE'S NETT WILL BE AS AGREED (ENSURE AN ESCALATION CLAUSE IN THE AGREEMENT).
R.V.RAO