Payment by Indian subsidiary company

Is it possible for an Indian subsidiary company to pay for expenses incurred by its holding company incorporated outside India?

Replies (1)

Yes, it is possible for an Indian subsidiary company to pay for expenses incurred by its holding company incorporated outside India, subject to certain conditions and tax implications.

 

From a legal perspective, there are no restrictions under the Indian Companies Act, 2013, that prohibit an Indian subsidiary company from paying for expenses incurred by its holding company. However, such transactions would need to be carried out in compliance with transfer pricing regulations and other applicable tax laws in India.

 

From a tax perspective, payments made by an Indian subsidiary company to its holding company outside India would be considered as an international transaction and would be subject to transfer pricing regulations under Section 92 of the Indian Income Tax Act, 1961. Transfer pricing regulations require that such transactions be carried out at arm's length prices, which means the prices should be comparable to prices that would have been charged between unrelated parties in similar circumstances.

 

If the Indian subsidiary company is paying for services or intellectual property rights, it would also be subject to withholding tax at the applicable rates. The withholding tax would need to be deducted at the time of making the payment and remitted to the Indian tax authorities.

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