TDS on reimbursement cost to Foreign Holding company, Income Tax

[Sai Prasad]

Should we deduct TDS for reimbursement of AWS Cost incurred by the holding company on behalf of the Indian subsidiary?

It is cross charged to Subsidiary on Cost tocost basis (without any Mark-up)

Posts / Replies

[YAGAY andSUN]

In most cases, TDS (Tax Deducted at Source) is not required to be deducted on a pure reimbursement of expenses, provided the following conditions are met and well-documented:

✅ Conditions Where TDS Is Not Applicable:

1. Pure Reimbursement:

   • The Indian subsidiary is simply reimbursing the exact AWS cost incurred by the holding company, without markup or profit.

2. Invoice & Agreement Clarity:

   • The original AWS invoice should clearly be in the name of the Indian subsidiary (or at least show usage attributable to it).

   • A proper inter-company agreement should exist stating the reimbursement nature and cost-to-cost recovery.

3. No Services Rendered:

   • The holding company is not providing any service or adding value — only paying on behalf of the subsidiary.

4. No Withholding Tax in Nature:

   • The expense being reimbursed (AWS) is not itself subject to withholding tax in India. AWS typically provides cloud services, which may fall under Royalty / FTS (Fees for Technical Services) under Indian tax law if paid directly to AWS by an Indian entity.

⚠️ When TDS May Be Applicable:

1. If the AWS invoice is in the name of the holding company and not the Indian subsidiary, the Indian tax authorities may view it as a service provided by the holding company to the subsidiary — making it liable for TDS under Section 195.

2. If there is any markup or fee added (even administrative), then it becomes a service transaction, and TDS applies.

3. If the AWS payment would have attracted TDS (e.g., if the Indian subsidiary paid AWS directly), then the reimbursement may still attract TDS, unless exemption is obtained or tax treaty benefits are applied properly.

💡 Recommended Action:

• Maintain strong documentation, including:

  • Inter-company agreement

  • Breakdown of cost (no markup confirmation)

  • Original AWS invoices

  • Proof that services were for the Indian subsidiary

  • Consider obtaining a CA Certificate or tax advisor opinion to support the non-deduction of TDS.