The fees for technical services payable by the Govt. or an Indian Concern in pursuance made by the non-resident with the Govt. or the Indian Concern and where such agreement is with an Indian concern, the agreement is approved by the Central Govt. or where it relates to matter included in the industrial policy, the agreement is in accordance with that policy- Where the agreement is made on or after June 1, 2005. TDS rate is 10%.
Can anyone please tell me that what is the meaning of the line starting from where the agrrement is with indian concern........ in the above pharagraph? Is every agreement with non-resident always approved by the central govt. or in accordance with the industerial policy? Also what is the difference between TDS & Withholding Tax?
30 May 2009
Please refer to the various notifications issued by RBI and also FIPB policy document, where in requirement of approvals for various payments are given.
14 July 2024
Let's break down the queries one by one:
### 1. Meaning of the Line "Where the agreement is with an Indian concern":
The line you're referring to is part of Section 195 of the Income Tax Act, which deals with the withholding tax (TDS) requirements on payments made to non-residents for various services, including fees for technical services. Here’s what it means:
- **Agreement with an Indian Concern:** This refers to situations where a non-resident enters into an agreement to provide technical services (or other specified services) to an Indian concern. The agreement could involve payment for technical services rendered by the non-resident to the Indian concern.
- **Approval by Central Government:** If the agreement is with an Indian concern, and it involves certain categories of services as specified by the Central Government or the industrial policy of India, then specific approvals may be required. For instance, if the service is related to defense, space research, atomic energy, etc., approvals may be necessary.
- **Industrial Policy:** Refers to the policies and guidelines issued by the Government of India regarding various sectors of the economy. If the agreement falls within the scope of industrial policy guidelines, it should be in compliance with those guidelines.
### 2. Approval of Agreements by Central Government or Industrial Policy Compliance:
Not every agreement with a non-resident is required to be approved by the Central Government. The requirement for approval typically applies to specific sectors or sensitive areas such as defense, space, atomic energy, etc. For other sectors, compliance with the industrial policy guidelines may be sufficient.
### 3. Difference Between TDS and Withholding Tax:
- **TDS (Tax Deducted at Source):** TDS is a mechanism under the Income Tax Act where a specified percentage of tax is deducted by the payer (resident or non-resident) at the time of making certain payments such as salaries, interest, rent, professional fees, etc. The deducted amount is then deposited with the government on behalf of the payee.
- **Withholding Tax:** Withholding tax is a broader term that includes TDS. It refers to the tax withheld from payments made to non-residents (or sometimes residents) for income earned in a country where the payer is located. It ensures that tax is collected at the source itself.
### Conclusion:
Understanding Section 195 of the Income Tax Act is crucial when making payments to non-residents for services rendered in India. The requirement for approval by the Central Government or compliance with industrial policy depends on the nature of the services and the sector involved. TDS is a specific form of withholding tax that applies to various types of payments, ensuring that appropriate taxes are withheld and deposited with the tax authorities.
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