04 August 2010
ANY TDS EXEMPTION AVAILABLE FOR FOREIGN COMMSSION REMITTANCE TO OUTSIDE INDIA TO NON RESIDENT FOR SERVICE RENTED OUTSIDE INDIA FOR EXPORT ORDER.
04 August 2010
The following is an extract of Circular 786 dated 7th February, 2000.
“The deduction of tax at source under section 195 would arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No 23 dated 23.7.1969 is drawn, where the taxability of 'Foreign Agents of Indian Exporters" was considered alongwith certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments are therefore held to be not taxable in India. The relevant sections, namely section 5(2) and section 9 of the Income-tax Act, 1961 not having undergone any change in this regard, the clarification in Circular No 23 shall prevails. No tax is therefore deductible under section 195 and consequently the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure…….”
So section 195 is not attracted and therefore No tds is required. Since TDS is not required as per board's circular there cannot be any question of disallowance
04 August 2010
The Central Board of Direct Taxes (CBDT) had earlier issued a circular (Circular No. 23 dated July 23, 1969) clarifying the India tax liability of non-residents in respect of income accruing or arising through or from, a business connection in India. As per the aforesaid Circular 23, even if a business connection existed under section 9 of the Income-tax Act, 1961 (“the Act”), only so much of the profit which can be reasonably attributed to the operations of the business carried out in India could be subject to tax in India. Circular 23 also provided clarifications on the taxability of non-residents in specific situations.
The CBDT has now vide Circular no. 7/2009 dated 22 October 2009 withdrawn the above referred Circular 23 on the grounds that the Circular 23 does not actually apply to a particular case, or tax payers were interpreting it to claim relief which was not in accordance with the provisions of section 9 of the Act or the intention behind the issuance of the Circular. The CBDT has also withdrawn Circular no. 163 dated 29 May 1975 and Circular no. 786 dated 7 February 2000 which provided certain clarifications with respect to Circular 23. While Circular 163 provided further clarifications to Circular 23, Circular 786 indicated that tax is not deductible at source from payments made to non-resident agents on commission and other charges.
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