Background

The Income-tax Act, 1961 (“IT Act”) contains various machinery provisions which enable tax authorities to recover tax dues from taxpayers. When payments are made to non-residents that are chargeable to tax under the IT Act, payers (both resident and non-resident) are obligated to withhold tax at applicable rates prior to remittance of funds. Typically, no such obligation arises if the payments are not subject to tax in India. Thus, there are times when taxpayers don’t withhold tax on payments, believing they should not be subject to tax under the IT Act. However, if the Indian tax authorities take a different view, they may initiate proceedings under section 201 of the IT Act against such taxpayers, i.e., the person responsible for withholding taxes.Continue Reading Orders for default in withholding tax on payments made to non-residents must be passed in a reasonable time