Taxability determination for the payment made to a Non-Resident

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Taxability of payments made to non-residents depends on the nature of payment and the provisions of Double Taxation Avoidance Agreement (DTAA).

The taxability of payments made to non-residents is determined by the provisions of the Income Tax Act, 1961 and the DTAA.
Payments made to non-residents are subject to withholding tax at the applicable rate.
The nature of payment determines the rate of withholding tax.
If the DTAA provides for a lower rate of withholding tax, then the lower rate will apply.
Payments made for services rendered in India are subject to withholding tax.
Payments made for royalty, technical know-how, or transfer of technology are also subject to withholding tax.
Payments made for interest on loans are subject to withholding tax, subject to certain exemptions.
Payments made for dividends are also subject to withholding tax.
Non-residents can claim a refund of excess withholding tax by filing a tax return.
Proper documentation and compliance with withholding tax provisions is important to avoid penalties and interest.
Tax treaties between countries can also impact the taxability of payments made to non-residents.

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