29 July 2022
We have received Engineering Services from China which is our Parent Company is TDS applicable on Engineering Services and what will be the rate of TDS and which TDS Section is Applicable
11 July 2024
When a company in India receives engineering services from its parent company in China, the tax implications depend on various factors including the nature of services, the relationship between the entities, and the provisions of the Income Tax Act, 1961. Here's a detailed overview:
1. **Nature of Services**: Engineering services generally fall under the category of "fees for technical services" (FTS) as per Section 9(1)(vii) of the Income Tax Act, 1961. The term "fees for technical services" is defined broadly to include any consideration for rendering technical or consultancy services.
2. **Applicability of TDS**: According to Section 195 of the Income Tax Act, if a payment is made to a non-resident (such as the parent company in China) and it constitutes income that is chargeable under the provisions of the Income Tax Act, TDS is applicable. This includes payments for fees for technical services.
3. **Rate of TDS**: The rate of TDS under Section 195 can vary depending on the nature of the payment and any applicable Double Taxation Avoidance Agreement (DTAA) between India and China. Typically, the TDS rate for fees for technical services under Section 195 is 10%, unless a lower rate is prescribed under the DTAA.
4. **TDS Section**: The relevant TDS section applicable in this scenario is Section 195 of the Income Tax Act, 1961.
### Steps to Comply with TDS Requirements:
- **Determine Taxability**: Assess whether the engineering services received from the Chinese parent company qualify as "fees for technical services" under Section 9(1)(vii) of the Income Tax Act.
- **Rate of TDS**: Check the applicable TDS rate under Section 195 or as per the DTAA between India and China. If the DTAA provides for a lower rate, ensure to apply that rate.
- **TDS Deduction and Payment**: Deduct TDS at the applicable rate before making the payment to the non-resident (Chinese parent company).
- **TDS Return**: File Form 27Q (for non-salary payments to non-residents) and deposit the TDS amount with the government within the prescribed timelines.
- **Documentation**: Maintain proper documentation including the agreement for engineering services, invoices, proof of TDS deduction, and any correspondence with the Chinese parent company.
### Consultation:
It's advisable to consult with a tax advisor or chartered accountant who can provide specific guidance based on the nature of services, the terms of the agreement, and any applicable DTAA provisions. They can also assist in ensuring compliance with TDS requirements and preparing the necessary documentation for tax filing purposes.
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