Newly Incorporated a Pvt Ltd Company in A.Y.2023-24 - Income Tax

Hi Abdul Fayaz, here’s a detailed note on your query regarding tax treatment for a newly incorporated Pvt Ltd company providing export of services to GCC countries, with withholding tax (WHT) deducted by customers:

1. Taxation of Export of Services by an Indian Company

• Export of Services is considered as export under GST and also treated as income from business carried outside India.

• The income earned from export of services is fully taxable in India unless specifically exempted.

• There is no blanket exemption from Income Tax merely because the income is from export of services.

• However, the company can claim benefits under applicable tax treaties (DTAA) and certain provisions of the Income Tax Act.

2. Withholding Tax (WHT) Deducted by Foreign Customers

• Foreign customers (in GCC countries) may deduct WHT at source on payments made to your company as per the tax laws of their respective countries.

• This WHT acts as tax paid in foreign country on the income earned by your Indian company.

3. Claiming Relief under Section 90 of the Income Tax Act (DTAA Relief)

• If India has a Double Taxation Avoidance Agreement (DTAA) with the GCC country (e.g., UAE, Oman, etc.), the company can claim relief from double taxation.

• To claim relief:

  • The company should obtain a Tax Residency Certificate (TRC) from India.

  • Submit the TRC and Form 10F to the foreign tax authorities, so that WHT is deducted at a lower treaty rate (if applicable).

  • WHT certificate from the foreign customer should be collected as proof of tax paid abroad.

  • In Indian tax return, claim relief under Section 90/90A by crediting foreign tax paid (WHT) against Indian tax liability on the same income.

4. Tax Benefits and Suggestions

• The company can claim Foreign Tax Credit (FTC) for WHT deducted by the foreign customer, thus avoiding double taxation.

• Ensure all documentation (WHT certificates, TRC, Form 10F) is maintained properly.

• The company can reduce tax burden by planning treaty benefits, but no exemption of Indian income tax unless income is specifically exempt under the IT Act.

• Consider consulting with a tax expert for proper structuring and treaty benefits optimization.

5. Additional Points

• If the company qualifies as a Special Economic Zone (SEZ) unit or under other notified schemes, additional tax benefits may apply.

• Ensure compliance with GST export rules for export of services to avoid GST liability.

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