Non-resident Services Out of India to be Taxed Retroactively: Budget 2010-2011 Proposed!

Well, it happens every year.. when a budget is proposed, there are always issues as to how it would effect certain strata of the society and how it is going to effect some others adversely! As the Union Budget 2010 has been proposed a few days back, the most expected things and reactions were sure to come out..and so they did!

Amongst the many undesirable alterations like fuel price hike, one of the unpleasant proposals in the budget is the alteration to India’s source rules. The proposal states that payments made to non-residents for delivering services even outside India will now be covered by the country’s tax net.

A non-resident may be entitled to tax on royalty, interest and technical services fees, irrespective of the fact that the person has delivered the entire services outside India, as well as he/she does not have a place of business or residence in India, as opposed to the existing law, which states that a non-resident is taxable only on his/her income that is sourced in India. The worse thing is that a payment for transactions achieved in the previous period may also be taxed, given the non-resident has no place of business in India.

Well, if the proposed alteration to the country’s source rules is put into effect, it is likely to have unfavorable consequences on the international service models. For example, such amendments would cover the income earned by overseas consultants, even if they do not perform their job in India! The proposal has left the concerned talking about issues like double taxation as well!

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