TDS on reimbursement to pre-incorp exp ???

section 195 gets attracted only if there is an income component in the remittance to be made to a non resident.

however, if it is a pure reimbursement of actual expenses incurred by the holing co. then there is no need to withhold tax.

 those who are saying thet tds is not applicabe on re-imbursements please read this...this is an extract from cicular no. 715 dtd 8-8-1995

Question 30 : Whether the deduction of tax at source under sections 194C and 194J has to be made out of the gross amount of the bill including reimbursements or excluding reimbursement for actual expenses ?

Answer : Sections 194C and 194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source.

those citing circulars should first understand the TDS provisions.

let me tell u that neither 194C nor 194J is applicable in this case. the holding co. is  NR. Thus, section 195 is applicable which states:

"Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest ²³[***] or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries ²⁴[***]) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force"

Actual reimbursement is not chargeable under this section.

this i m telling from my professional experience. i have obtained many NOCs from the IT dept on this subject in case of one of india's leading car manufacturing co. whose holding co. also is a NR.

Thank You.

 i think the language of the circular is very clear. there is no scope of different interpretation. the circular  provides  that only in case of commission agent the ticket amt should be deducted for the purpose of  tds  calculation. if the depptt has given a noc in certain case it does not mean it will give same noc in other cases. 

 i hv referred to 194c and 194j to remove a misconception abt tds....if you see, my first post talks abt section 195 and its application in the present case. 

if pre incoporation expenses are expenses which are falling u/s 35D then they will be allowed as an expenses in five installment. so tds should be deducted otherwise if expenses are not allowed then tds shall not be deducted because it is not taxable under this act

Any wrong decision can't partake the correct position of law, SC has already stayed the Samsung Judgement and in case of reimbursement of pre incorporation expenses then TDS is not liable to be deducted,since there is no element of income involved in the same.

Firstly on - Deductibility of TDS on reimbursement

The important factor in determining the deductibility of TDS is - Whether the expenses incurred by that person (counterparty) is on your behalf or was it payable by him in normal course of work. i.e if you were suppose to incur some expense and some one else has incurred it on your behalf and you are reimbursing that person, then TDS is not deductible.

Secondly - TDS on reimbursement of pre-inc expenses

Since these expenses have been incurred before the company was in existence, there is no way the company could have incurred it. Hence payment to Non-resident towards pre-inc expenses will be treated as reimbursements and not subject to TDS.

Thirdly - On a separate note, If a MD has been identified before Incorporation or if it is a family run business.. then it would be prudent for the Non-resident to transfer funds to that person and ask him to incur these expenses.. Upon incorporation he may claim the amount as reimbursement and remit it back to the non-resident... This way there is less risk of falling within the WHT regime..

Originally posted by : Adarsh Agrawal
	Normally US holding co incurs all pre-incorporation expense relating to incorporation of indian subsidiary.. my query is, when the subsidiary (after incorporation) wants to reimburse the expense to holding co. TDS to b made on this pmt to Non-resident? thanks Adarsh

Suppose the case is Foreign Holding Co. "H" sends a courier to Indian subsidiary co "S" by a courier co "D" and claim that amount from "S". D prepares bill in name of H and takes payment from him. What is TDS liability on payment from S to H.