With Holding Tax
Querist :
Anonymous
(Querist) 21 April 2011
This query is : Resolved
Dear all
Below is my query wrt to WHT
Situation - When the Non Convertable Debenture is held by an ofshore investor, WHT to pay on interest as per the tax treaty between the countries.
Typically, offshore investors ask for the interest payment to be grossed up for the tax, so that their return is not hampered.
So for instance, if the offshore bond investor wants 11% interest, and withholding tax is 10%, the interest payable by the issuer is 11% * (1-10%) = 12.22%
Question-
1. Is the tax amount so paid to investor can be taken as business expenditure.
2. The tax amount paid by the issuer (= 1.22%) be set off against income tax paid by the issuer?
Thanks in advace for your support.
R.Ramachandran
(Expert) 21 April 2011
As per my understanding, what you pay to the investor is nothing but interest (do not misunderstand it to be tax).
You are grossing up the interest, so that even after WHT the net interest in the hands of the investor does not get eroded. You have to with hold the tax applicable on the grossed up interest. Therefore, I don't see any reason for you to claim any set off of any presumed income tax paid by you (due to grossing up of the interest).
Querist :
Anonymous
(Querist) 22 April 2011
Thanks a lot for your response.
