TDS/Withholding Tax

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

17 December 2009 Hi,

Request an expert opinion the above, what are the Tax Implications......

1) We are receiveing the professional services from Company "A" which is foreign company and having the subsidiary in India

2) The contract signed between our organisation and foreign company

3) they have raised the invoice from abroad in foreign currency

4) and adviced us to pay the amount in INR to their indian subsidiary's bank account.

Sunil

Sunil (Expert)
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17 December 2009 For tax purposes, the subsidiary and the foreign company are two separate entities.

If the Indian subsidiary acts as a dependent agent of the foreign principal, then also there are two separate entities. The first is the subsidiary acting in its own capacity. The second is the subsidiary acting as a DAPE of the foreign entity. The latter is a fictional creation for which the subsidiary is responsible as much as the parent.

If you are paying the subsidiary in India, it is acting as the authorised dependent agent of the non-resident and accordingly you will have to deduct TDS u/s 195 as your contract is with the principal. If you remit the payment directly abroad, as per DTAAs, the subsidiary company is not deemed to be a PE unless it is used as an agent. Therefore, for services rendered by the foreign entity, if you pay direct you can apply provisions and rates as per DTAA or income tax, whichever more beneficial.

Querist : Anonymous

Querist : Anonymous (Querist)

17 December 2009 Dear Sunil,

Thanks for the quick answer,

Is this services come under ambit of Import of services and Service tax rules applicable to that effect....?

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Sunil

Sunil (Expert)
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18 December 2009 Yes. You have to pay on reverse charge mechanism. No threshold exemption limit and no input service can be claimed under such charge of service tax