What is the Applicability WHT on remittance of profits by the branch to its head office.

Great question, Arif! Here's a clear explanation regarding Withholding Tax (WHT) on remittance of profits by foreign branches and subsidiaries in India:

1. WHT on Remittance of Profits by a Foreign Branch to its Head Office

• Foreign Branch of a company is not a separate legal entity—it's considered part of the same company.

• When a foreign branch operating in India remits profits to its Head Office (HO) abroad, there is generally no withholding tax on such remittance in India.

• This is because profits earned by the branch in India are already subject to tax in India at the branch level under the Income Tax Act.

• The remittance of those taxed profits back to the head office is treated as a transfer within the same entity, so no additional WHT applies.

• However, the taxability in the home country (Spain, in your case) depends on Spain's tax laws.

2. WHT on Remittance of Profits by a Subsidiary Company to its Parent Company Abroad

• A subsidiary company is a separate legal entity.

• When a subsidiary in India pays dividends or remits profits to its parent company abroad, Withholding Tax provisions apply as per Indian tax laws and applicable Double Taxation Avoidance Agreement (DTAA).

• Dividend Remittance:

  • As per Indian Income Tax Act, dividend payments to foreign shareholders attract WHT under Section 195.

  • The typical rate is 20% plus applicable surcharge and cess, but this can be reduced under DTAA between India and the parent company’s country (Spain).

• Other Profit Remittances (like royalty, fees, interest):

  • WHT applies based on the nature of payment and applicable treaty rates.

Summary Table

References to Check:

• Section 195 of Income Tax Act, 1961 – Regarding WHT on payments to non-residents.

• DTAA between India and Spain – To check reduced rates and exemptions.

• CBDT Circulars – For clarifications and procedural rules.