Is foreign income taxable in India

Double tax treaty and withholding tax in India

Since 1997 there has been a bilateral agreement between India and Germany to avoid double taxation in the area of ​​taxes on income and assets (DTA).

Among other things, this regulates the withholding of license payments by an Indian licensee to a licensor not based in India. According to Indian tax law, license fees are generally subject to a withholding tax of 10 percent; with regard to Germany, the withholding tax rate is also limited to 10 percent in accordance with Art. 12 (2) of the DTA. The withholding tax rate is also limited to 10 percent for remuneration for technical services (services provided by foreign companies without a permanent establishment in India that are invoiced to India). The payer or recipient of a service subject to withholding tax withholds the withholding tax and pays it to the Indian tax authorities if the recipient of this income is taxable in India with this income.

The effective tax rate may be higher due to surcharges and duties.

Until 2016, foreign recipients of royalty payments or other payments subject to withholding tax were required, a so-called Permanent Account Number (PAN) to be subject to the reduced tax rate of 10 percent instead of 20 percent. Detailed information such as address and tax residence certificate are now sufficient; a PAN previously issued by the Indian tax authorities is still valid and must be reported.

Construction or assembly work for a period of more than six months falls under the term “permanent establishment” in accordance with Art. 5, Paragraph 2, Letter i DBA.

This post belongs to: