Sept. 10 – India-based companies are not liable to deduct tax on overseas payments according to the latest Supreme Court on the subject.

This overturns the income-tax department’s earlier decision on the contrary and is a huge relief for many local and foreign companies based in India. More importantly, it formally clarifies the tax law regarding overseas payments or withholding tax.

The issue was brought to attention by several technology firms and now they will have to again appeal to the high court to confirm if tax payments are needed for shrink-wrapped software.

Tax authorities are following the rule that imports from a non-resident is an income to the seller, thus the buyer needs to account for tax. In cases wherein the buyer would like to withhold tax, an approval from a revenue officer must be received.

For more advice on dealing with corporate taxes in India, please contact Dezan Shira & Associates at india@dezshira.com.