Treatment of withholding taxes

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

02 November 2016 Hi

We are a 100% subsidiary of a Japanese company. We keep on receiving advance payments from parent company in order to incurr expenses in India and such advance amount is adjusted when we book sales in consideration of services provided to our parent company in Japan. Our parent company deducts TDS@10% of the payment to be made. We book the TDS credit as asset in our books of accounts as it should normally be done.

Now, the parent company files income tax return in Japan on behalf of us. The tax payable is always less than the amount of TDS deducted. So, the status in the tax return filed in Japan is always tax refundable. The refundable amount of tax is claimed by parent company (and not us, the subsidiary company on India). The Japanese tax authority remits the refundable portion to the parent company. Such refundable amount of tax is not remitted to us in the name of tax refund. We still keep on receiving the advance payments from parent company, but no amount is remitted by parent company in the name of tax refund.

Kindly suggest if there is violation of FEMA or any other law?

Your assistance would be highly appreciated. Thanks.

Amol S Joglekar

Amol S Joglekar (Expert)
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02 November 2016 if tax refund is received by your parent company, pass the JV.....debit parent company and crediting withholding tax, to that extent.
Are you doing that?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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02 November 2016 If the company is registered in India then IT return has to be filed in India not in Japan. Pass the JV as suggested. File IT return In India availing tax relief on TDS deducted. Pass JV adjusting TDS against Income tax payable.

Querist : Anonymous

Querist : Anonymous (Querist)

02 November 2016 @Amol sir: We are passing the entry suggested by you. But the concern is there is no flow of funds for TDS refund. So, is there any violation of any law such as FEMA or any other law?

@Seetharaman sir: Income Tax return is definitely being filed in India. We are also liable to file the return in Japan due to taxable income arising in Japan on account of sale in Japan to parent company. Parent company is filing the return on our behalf and claiming the tax refund.

Amol S Joglekar

Amol S Joglekar (Expert)
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03 November 2016 No violation of FEMA as you are debiting the account of your parent company in your books of accounts, for the same. (Parent company is receiving the refund on your behalf)