Delhi High Court Ruling Clarifies Withholding Tax Provisions

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Apr. 2 – A recent decision made by the Delhi High Court clarifies that non-residents are required to withhold taxes only if the payments are taxable in India.

Following the court decision, Indian companies will not be liable for procuring withholding tax orders from the Indian tax authorities in cases where the overseas payments are not taxable in India.

The decision varies from a previous case coming from the Karnataka High Court and Samsung Electronics which ruled that unless an order is obtained from the tax authorities for withholding tax at a lower or nil rate, a taxpayer would need to withhold taxes on all payments at the applicable withholding tax rates, even if the income may not be taxable in the hands of a non‐resident.

Due to opposing rulings from two different courts, it will be up to the Supreme Court to make the final decision on the matter of withholding tax compliance. Until then, companies are advised to take extra care when complying with withholding tax requirements for overseas payments.

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