Non-resident entities seek withholding tax breather amid second Covid wave

In absence of certificates, they risk having 40% tax cut from revenues

Non-resident entities are in a fix over the extent of their withholding tax expense amid the second wave of Covid-19. As several such players have been unable to obtain low or nil withholding tax certificates in time, they risk having 40 per cent tax deducted from their revenues, making business unviable, experts said.
 
Such entities are now hoping for relief similar to that provided last year, when the finance ministry extended the validity of the previous year’s withholding tax certificate by three months to June 30 in view of the hardships faced due to the pandemic.
 
Non-resident players seeking lower or nil tax deduction at source apply for a withholding tax certificate from the income tax (I-T) department, which calculates the liability on a case-by-case basis, based on the character of income, tax treaty benefits, estimated losses, etc.
 
However, many assessees have not been able to collate the required information and file the lower withholding applications because of Covid-related restrictions. Even in some cases where applications have been filed, the I-T authorities haven’t been able to process applications in time because of limited resources.
 
Several representations have been made to the government seeking an extension of tax rates applicable till March 31, 2021, to allow them to address the uncertainty on the cash flow front.

 
“In the absence of lower withholding tax certificates being issued before April 30, 2021, the deductors would be forced to deduct tax at maximum marginal rates, which stands at 40 per cent plus surcharge and health and education cess in the case of foreign companies,” said a tax consultant.
 
“Delay in issuance of the LDCs, would cause undue financial hardship to the assessees for no fault of theirs and would cause financial pain in already difficult times,” he added.
 
Lockdowns have been imposed over most of the country to slow the spread of Covid-19, with over 300,000 cases and 4,000 deaths being reported daily.
 
Tax experts argued that the government must provide relief to ensure continuity of payments to contractors and service providers, both resident as well as non-resident who were authorised to receive payments, either without deduction of taxes or deduction at a lower rate.
 
“All private offices are shut and government offices are working with minimal capacity in most states. Due to these unprecedented times, several taxpayers and especially foreign companies are facing undue hardship on account of higher TDS… a similar notification may kindly be issued for financial year 2021-22 and extend the validity of the lower or nil certificates issued under section 197 and 195 for FY21 (similar to the previous year) up to June 30, 2021,” read one of the representations made to the government.