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International taxation

PRAVESH RATHI (CHARTERED ACCOUNTANT) (54 Points)

14 May 2012

Hi All ,

I have a question regarding the Tax Implications on the following situation :-

Machinery Supplied from outside India at FOB price. The cost of Machinery Includes the Erection & Installation charges also.

How to segregate the Installation & Machinery Cost?
The taxability of Installation Cost in India.
The applicability of Service tax on it.

Supposedly there's a branch in India of the foreign company & the machinery is supplied directly to the customer & bill for the same is raised to the customer from outside India & remittance is also made to Head Office not to the Indian branch.

What will be Tax implications of the above transaction on it's Branch In India ?

Your kind views & opinion's are awaited.

Regards,

Pravesh Rathi

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2 Replies

Kapil (CA) (68 Points)
Replied 14 May 2012

if the cost of machinery and installation cost are not mentioned specifically, you need to duduct withholding tax as per relavant DTAA on the total amount of the Invoice (i.e 10.51% or as per DTAA, in case the supplier do not have PE in India or if the PE is not invloved in the operations in India)

In case branch is involved in transaction the applicabe withholding tax rate will be 42.03% (appox) as the foreign company as PE in India.

In case amount of cost of machinery and installation charges is not differentiable and you want to withhold tax on lower amount, you have to make an application to the concrned AO for passing a order u/s 195(2).