Source of tax rate under section 195

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VIPIN KUMJAR (Querist)
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10 October 2012 Is there any rate specified in section 195 of income tax act to deduct tax at source for different type of services received from foreign company.

I went through the section 9 of Income Tax Act, 1961 but the rate for levy of tax is not mentioned anywhere in the section. Sunil, Could you give me the reference, from where u got the rate of tax.

Sunil

Sunil (Expert)
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10 October 2012 Usually the rate of TDS u/s 195 is 30% in case you are deducting tax from an individual and 40% for others (incl. proprietorship entity). Section 9 of Income Tax Act may specify some lower rates also. You can even give benefit of lower rate as per DTAA if it is lower than rates in Section 9 or the general rate. If DTAA specifies no tax on that particular item then you do not need to deduct the tax. However if Section 9 or DTAA prescribes a rate lower than 20%, if no PAN is available you have to still deduct the minimum 20%.

VIPIN KUMJAR

VIPIN KUMJAR (Querist)
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11 October 2012 I went through the section 9 of Income Tax Act, 1961 but the rate for levy of tax is not mentioned anywhere in the section. Sunil, Could you give me the reference, from where u got the rate of tax.

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Sunil

Sunil (Expert)
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11 October 2012 For certain items like royalties, technical fees etc. and interest Section 9 gives rate of TDS. In fact for ECB they recently reduced it by a notification. Usually as foreign party does not agree and want a nett amount, you have to bear TDS on grossed up basis. I.e. if Tax rate is 10% and you do not deduct, then you pay 12.5% tax.

However requirement of PAN is there otherwise minimum 20% or a higher rate if higher.

In Section 9 Technical Fee definition is imported from Section 194J but if some DTAA like USA define it differently, you can take their definition while applying condition of taxability in India or not.