The Centre has raised the withholding tax rate on royalties and fees for technical services earned by non-resident companies from the present 10 per cent to 20 per cent.
This move forms part of the 64 amendments moved to the Finance Bill 2023 by the Finance Minister Nirmala Sitharaman in the Lok Sabha on Friday
Saurrav Sood- Practice Leader International Taxation at SW India said this increase in rate will lead to a higher rate of tax of withholding tax obligations on payments to be made to non-residents unless there is a tax treaty benefit which reduces such rate. “In a typical example of payments made to US companies, the rate of withholding tax on royalty and fees for technical services under the tax treaty was 15 per cent. However, Indian companies while making such payments used to take benefit of a lower rate as per the domestic tax act. Now, where such rate under the domestic tax act has been increased to 20 per cent, such benefit shall not be available. Further, where even if tax treaty benefit is taken, when such non-resident will file its income tax return in India, the differential tax will be required to be paid at the time of filing of return of income”, he said.
Rajesh Srivastava, Partner, Deloitte India, said that the proposed increase in withholding tax rates from 10 percent to 20 percent on royalty and fees for technical services payments to non-residents is likely to have an impact on the technology imports.
Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co, said “The tax rate on royalty and fee for technical services has been increased from 10 per cent to 20 per cent. Now, the foreign companies will be required to avail tax treaty shelter to reduce the withholding tax rate”.