India: Withholding Tax

An engineering, procurement and construction contract in India is taxed on the strength of decisions taken before the award: how the scope is divided, which entity signs, where title to equipment passes, and what the employer is told to withhold.

An Indian company pays a foreign supplier, parent or consultant, and deducts nothing. The invoice is settled, the money has left India, and a notice arrives two years later. From 1 April 2026 this sits in the Income-tax Act, 2025, where the withholding obligation on payments to non-residents is in Section 393(2) and the consequences of failure are in Section 398. The liability falls first on the Indian payer, but the recipient is rarely left untouched, because the payer usually looks to the contract to recover what it has paid. This note takes both sides in turn. The firm sets out the framework on its page on withholding tax on payments to non-residents.

Two questions about the Mutual Agreement Procedure decide more outcomes than any other: what happens when the Indian payer, rather than the foreign recipient, is the one held liable, and whether to run MAP or an Indian appeal. This note answers those first, then the procedural questions. From 1 April 2026 the Income-tax Act, 2025 and the Income-tax Rules, 2026 govern the procedure, so the familiar references to Rule 44G and Form 34F now point to Rule 121 and Form 55. The firm sets out the position in full in its analysis of the Mutual Agreement Procedure in India.

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