Foreign Cos Can Deduct Tax on Salaries Paid in India

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Mar. 26 – The Supreme Court of India has ruled that a foreign company registered and situated abroad is liable to deduct tax on salary paid in the home country to their employees working in India, the Economic Times reported. Until now, the ruling held that TDS provisions could not extend beyond borders.

The Supreme Court overruled a batch of appeals by the Income tax department which pertained to non-deduction of tax on salary paid to an expat employee working in India in their home country by the MNC’s parent company. Subsequently the court granted TDS relief to a number of MNCs including Mitsui, Mitsubishi, Lurgi and Ericsson.

TDS is an advance tax which in case of certain income, tax is deducted at source by the payer at a prescribed rate either at the point of accrual or payment of such income. Some income subjected to T.D.S. are salary, interest, dividend, interest on securities, winnings from lottery, horse races, commission and brokerage, rent, fees for professional and technical services, payments to non-residents etc. TDS is paid directly to the Central government and is used as an instrument to widen the tax base.

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