How Sachin P Kumar and Associates Helped a Leading IT Multinational Unlock Capital by Reducing TDS from 10% to 1.10%
At Sachin P Kumar and Associates, we understand the challenges faced by multinational corporations in managing complex tax compliance requirements while maintaining healthy cash flows. Recently, we had the privilege to assist a major IT multinational company that was grappling with a significant working capital blockage due to the standard 10% Tax Deducted at Source (TDS) deductions imposed on its payments.
This case highlights how strategic tax planning, coupled with effective legal representation, can transform a company’s financial landscape, freeing up capital and improving liquidity without compromising compliance. Here’s an overview of the challenge, our approach, and the successful outcome.
The Challenge: High TDS Causing Capital Blockage
For our client, the statutory deduction of TDS at 10% meant that every year, a substantial portion of their capital was withheld by tax authorities upfront. Despite being liable to a lower effective tax rate upon final returns, the upfront deductions created liquidity constraints, limiting their ability to deploy funds towards growth, innovation, and daily operations.
Such a scenario is common for multinationals operating within strict regulatory frameworks — they end up with excess blocked funds while awaiting refunds or adjustments, impairing their financial flexibility.
Our Solution: Procuring a Low Deduction Certificate (LDC)
Our team at Sachin P Kumar and Associates advised the client to seek relief through an official route under the Income Tax Act — the application for a Low Deduction Certificate. An LDC authorizes deductors to withhold tax at a rate lower than the standard prescribed percentage, based on the taxpayer’s projected actual tax liability.
Recognizing the immense potential benefits for our client, we undertook a comprehensive process:
- Financial Assessment: We conducted a detailed review of our client’s tax liabilities and cash flow impact from the high TDS.
- Documentation Preparation: We gathered and presented all required financial documents and justificatory evidence to support the client’s case for reduced deduction.
- Legal Representation: Leveraging our expertise in tax laws and procedural compliance, we prepared thorough legal submissions, articulating the hardship caused and the rationale for a lower TDS rate.
- Engagement with Tax Authorities: We proactively liaised with the TDS department, ensuring consistent communication and addressing queries to facilitate approval.
It is important to note that arrest under Section 69 is a serious step and is subject to judicial scrutiny, emphasizing the need for sufficient and compelling evidence.
The Result: TDS Reduced to Just 1.10%
Following our rigorous representation and meticulous documentation, the tax authorities issued the Low Deduction Certificate, allowing TDS to be deducted at a mere 1.10% instead of the 10% earlier applied.
This outcome translated into a remarkable release of blocked capital, enabling our client to reinvest funds into critical business functions, optimize working capital management, and pursue strategic initiatives more confidently.
Key Benefits Realized by Our Client
- Substantial Cash Flow Improvement: Immediate availability of additional working capital.
- Lower Administrative Burden: Reduction in frequent refund claims and associated paperwork.
- Enhanced Compliance Confidence: Full adherence to statutory requirements, minimizing risk of penalties.
- Stronger Financial Position: Greater flexibility in managing expenditures, payroll, and vendor payments.
Why Choose Sachin P Kumar and Associates?
Our success in securing the LDC for the client underscores our commitment to delivering tailored, effective tax solutions. We combine legal acumen with practical financial insight to ensure our clients not only comply with tax laws but also optimize their tax-related cash flows.
Our multidisciplinary team frequently assists corporate clients in navigating complex tax statutes, filing strategic petitions, and representing them before tax authorities to achieve favorable outcomes. We prioritize transparency, precision, and proactive engagement, helping clients convert compliance obligations into competitive advantages.
Conclusion
High TDS deductions need not be a roadblock to operational efficiency and growth. The right legal intervention, as demonstrated in this case, can significantly ease the tax deduction burden while safeguarding compliance. At Sachin P Kumar and Associates, we stand ready to assist multinational companies and other organizations in realizing similar successes through expert guidance and strategic representation.