Karnataka HC rules out TDS on secondment for reimbursement of salaries

This move simplifies the aspect of taxes for staff who provide services under secondment

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In a recent landmark ruling, the Karnataka High Court has separated the salary that employees receive for secondment from the fees for technical service, outside of the tax deductible at source (TDS).

During the pandemic many multinational corporations have seen secondment, that is, the temporary transfer of an employee to another country. This could have led to tax complications as employees shifted their base to another country.

The case came up with Abbey Business Services (ABS), which is a part of the UK-based Abbey National (ANP) and a subsidiary of ANITCO. APS had an agreement with ABS to provide services to an Indian client with executives from the UK delivering the services and getting paid for the samet. The TDS applicability here resulted in doubts as to whether the salary paid to the UK executives would be considered ‘fees for technical service.’

The High Court observation was that seconded employees were indeed working under the instructions of ABS which had employee functions in its control as well as their supervision. They were following directions as per ABS rules, guidelines and policies.

Simply put, the assesse, ABS, needs to be thereby treated as the employer of the UK-based seconded executives. There is thus no law that obligates ABS to go for TDS on the reimbursement.

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