Notified Jurisdictional Area Transfer Pricing – International Taxation Case Study
CBDT has notified Country A as NJA u/s 94A on April 01, 2017 due to lack of effective exchange of tax information with India. On August 01, 2017, X Ltd. has received a loan of Rs. 10,00,000 @10% per annum from Y LLC., who is resident of Country A. However, based on mutual agreement on September 1, 2017, India and Country A, decided that Country A would not be a NJA. As per the terms of the loan agreement , interest on loan was to accrue for the first time on 31.3.2018. Assuming the rate of TDS on such interest under the treaty between India and Country A is 10%, what would be the rate at which that shall be withheld ?
Notified Jurisdictional Area – Transfer Pricing – Solution:-
As per the provision of section 94A , the rate of TDS in respect of any payment made to a person located in the NJA, on which tax is deductible at source, will be the higher of the following rates –
- Rates specified in the relevant provision of the Income-tax Act, 1961 – 40% ; or
- Rate or rates in force – 10% as per the Treaty ; or
- 30%
Accordingly, the amount of TDS shall be Rs. 40,000 as per normal provision of the Income Tax Act, 1961. However, However, given that the two countries agreed that Country A shall no longer be an NJA, Y LLC., would be entitled to the benefit of the India – Country A Treaty and accordingly, the amount of taxes to be withheld shall be Rs. 10,000.
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