Lower Withholding Tax Certificate

Every service comes at a price. And what you earn determines what you pay to the government. Needless to say, tax liability in this country is a complicated and trying process. That’s where we come in, to balance the books and your expectations.

Understanding Tax Liability In India

To explain things in simple terms, there are plenty of occasions where domestic companies in India, or foreign companies with their establishments in India render services to a client. Now, these services are of course chargeable and liable to certain amount of tax withholding.

Assuming that the services rendered call for a tax withholding of 30%, the payer (the person/company availing the services) must pay the balance amount to the company giving the services. Consequently, the taxable amount is given to the tax authorities and the company providing the services must opt for a tax credit and consequent, tax refunds, a process which is relatively long an arduous, in order to get its due amount.

This tax liability has the propensity to create various issues on the side of the service provider.

Issues Which Arise Due To Standard Tax Liability And How To Mitigate Them

The primary problems which arise via this regime are simple:

  • Owed to the part payment made by the payer, the receiving company must wait for its tax return processing or even assessment and then claim the refund, which can lead to operational and cash flow issues.
  • The issue of tax liability can also create working capital issues for these companies, which can pose challenges in managing their business operations.

In order to mitigate these challenges, the mechanism of lower withholding tax certificate exists, which are provided to those companies which can justify with due reason that the computable and valid tax rate applicable for it is relatively lower than the prescribed tax rate for the company.

  • For e.g., if a company engaged in a certain form of business in India and taking into account its financial positions and projections for a said year, let’s say 30% of tax is applicable to it. But the effective tax rate in comparison to the revenue is 2% to 5%.
  • Here, the company (its stakeholders) can approach the tax authorities that the effective tax rate or applicable withholding tax rate is lower than the prescribed tax bracket and ask for a lower withholding tax certificate so that the said company can notify its deductors about applying a lower tax rate.

How We Come Into The Picture To Help

Be it assisting companies in terms of maintaining their balance sheets (since the certificate requires a 4/3-year financial statements record; not for new companies), analyzing its projections, realizing the clause mismatches and solving them for the companies applying for the certificate, Coinmen undertakes everything ranging from number crunching to negotiation for the clientele via representation in front of tax authorities.

The process of filing, which starts from filing Form 13 or Form 15E in certain cases is also duly assisted, where the complete documentation and filing steps till the application reaches the assessing officer is undertaken by the firm.

Lower Withholding Tax Certificate Provisions, Procedure and Practical Aspects

To know more about the nuances of lower withholding tax certificate, its process, and the kind of pre-requisite requirements it needs in terms of appropriate documentation

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Reporting Partners

Nitin Garg - Repositioning India's brand image for foreign investors | Founding Partner at Coinmen Consultants LLP

Nitin Garg

Co-Founder and Partner

Experience: 15+ years

Specializes in Transfer Pricing Former Manager, EY India (TRS)


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