Groping in the Dark: The Extending Arms of the Indian International Withholding Tax

Withholding taxes are important tax collection mechanisms, especially in relation to the income of non-residents. However, the efficacy of a withholding tax depends on its ability to approximate final tax liability. The ideal withholding tax is focused and minimizes the requirement of refunds. By this measure, the broadly worded Indian international withholding provision fails, especially in globalized times. Courts are divided on its scope and have held that this provision requires Indian "taxes" to be withheld, even on payments not chargeable to tax, even on payments between non-residents. This paper examines the legal and policy bases for such claims.