Section 115A Amendment - Impact on Withholding Tax & ITR Compliance
As per Indian Tax Law, payments made to Non-Residents/Foreign Companies for Fees for Technical Services (FTS) and Royalties were liable to tax at the effective tax rate of 10.92% (including surcharge and education cess).
Further, Indian Tax Law also provide that where India has entered into a Double Tax Avoidance Agreement (DTAA) with other countries, the provisions of the Act shall apply only if they are beneficial. As a result, provisions of the DTAA shall prevail over the provisions of the Act if the same is more beneficial.
Currently, many Tax Treaties signed by India with major countries like the United States of America, the United Kingdom, etc, prescribe a higher tax rate of 15% for Royalty and FTS. Further, many other Treaties with countries like Germany, Singapore, France, etc, provide for a tax rate of 10%.