03 April 2021
Whether TDS u/s 195 is applicable on Reinsurance premium remitted by domestic broker company to Foreign insurance companies ? Foreign companies have an Establishment in india.
10 July 2024
Yes, TDS (Tax Deducted at Source) under section 195 of the Income Tax Act, 1961 is applicable on reinsurance premiums remitted by a domestic broker company to foreign insurance companies, even if the foreign companies have an establishment in India. Here’s a detailed explanation:
### Applicability of TDS under Section 195:
1. **Nature of Payment:** - Reinsurance premiums paid to foreign insurance companies are considered as 'Income chargeable to tax' under the Income Tax Act.
2. **Section 195 Overview:** - Section 195 mandates that any person making a payment to a non-resident (which includes foreign companies) that is chargeable to tax in India, must deduct TDS at the applicable rates before making the payment.
3. **Reinsurance Premiums:** - When a domestic broker company remits reinsurance premiums to foreign insurance companies (even if they have an establishment in India), the payment is subject to TDS under section 195.
4. **Rate of TDS:** - The TDS rate under section 195 varies depending on the nature of the payment and the relevant Double Taxation Avoidance Agreement (DTAA) between India and the foreign country. Typically, the rate ranges from 10% to 40%, unless reduced by a DTAA.
5. **Compliance:** - The domestic broker company is required to deduct TDS at the applicable rate before remitting the reinsurance premiums to the foreign insurance companies.
6. **Consequences of Non-Compliance:** - Failure to deduct TDS or to deposit the TDS with the government may attract interest, penalties, and other consequences under the Income Tax Act.
### Establishments in India:
- Even if the foreign insurance companies have an establishment in India, the TDS under section 195 is still applicable because the payment is being made to the foreign entity outside India.
### Conclusion:
In summary, TDS under section 195 is indeed applicable on reinsurance premiums remitted by a domestic broker company to foreign insurance companies, irrespective of whether these foreign companies have establishments in India. It’s crucial for the domestic company to comply with TDS obligations to avoid any penalties or interest. For specific details regarding TDS rates and compliance, consulting with a tax advisor or chartered accountant familiar with international tax laws would be advisable.
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