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Notified Jurisdictional Area Transfer Pricing

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May 5, 2021

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3 mins read

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:-

International Taxation Services

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 –

  1. Rates specified in the relevant provision of the Income-tax Act, 1961 – 40% ; or
  2. Rate or rates in force – 10% as per the Treaty ; or
  3. 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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Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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