HIKE IN WITHHOLDING TAX RATE: Indian arms of MNCs may not feel sharp pain

India's tax treaties with most major economies cap withholding tax on royalties and technical fee at 10%

- KRISHNA KANT

Listed Indian subsidiaries of global multinaItionals (MNCs) spent nearly ₹7,000 crore on payment of royalty and technical fees to their parent companies in CY21/FY22. More than half the amount (₹3,770 crore) was paid out by domestic subsidiaries of European and American MNCs, such as Hindustan Unilever, Nestlé India, Colgate-Palmolive, BASF India, and Bosch, according to Capitaline Database.

The Indian subsidiaries of these MNCs were, so far, paying a withholding tax at the rate of 10 per cent on payment of royalty and technical fees to their parent. The finance Bill, cleared by Parliament on Monday, has now doubled the rate of withholding tax to 20 per cent. The hike is, however, likely to have only a marginal financial impact on most of the Indian subsidiaries.