Import of service

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

03 October 2016 Dear Expert,

We are an Manufacturing company in India. We are importing a 2nd hand machinery from Switzerland. We have contracted from one party in Netherlands to dismantle the machinery there in Switzerland and assemble here in India.

Please advise, whether this comes under import of services? Also, please advise on tds part. Do we need to deduct TDS and if yes, under which section and what rate?

Querist : Anonymous

Querist : Anonymous (Querist)

04 October 2016 Dear Expert, Please advise.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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28 July 2024 In your scenario, where you are importing 2nd hand machinery from Switzerland and have contracted a party in the Netherlands to dismantle the machinery in Switzerland and assemble it in India, the transaction has multiple components:

### **1. Classification of the Transaction**

#### **Import of Services:**

1. **Services Included:**
- The services provided by the Netherlands-based party include dismantling the machinery in Switzerland and assembling it in India. These services fall under the category of "import of services."

2. **Tax Implications:**
- **Service Tax:** If the service was provided before July 1, 2017, it would have been subject to service tax under the reverse charge mechanism. The recipient in India would need to pay the service tax.
- **GST:** For transactions post-July 1, 2017, such services fall under the Integrated Goods and Services Tax (IGST) regime. The recipient in India must pay IGST on these services under the reverse charge mechanism.

### **2. TDS (Tax Deducted at Source) on Import of Services**

#### **Applicability of TDS:**

1. **TDS Provisions:**
- TDS on payments to non-residents for services is governed under **Section 195** of the Income Tax Act, 1961.
- As per Section 195, any person responsible for paying to a non-resident any sum chargeable under the provisions of the Income Tax Act is required to deduct tax at source.

2. **Nature of Payment:**
- Since you are paying for services related to the dismantling and assembly of machinery, it would be classified as a fee for technical services or consultancy services, which are typically covered under TDS provisions for non-residents.

3. **Rate of TDS:**
- The rate of TDS depends on the nature of services and the provisions under the Double Taxation Avoidance Agreement (DTAA) between India and the Netherlands. For technical services, the rate is often around 40% (plus surcharge and cess), but it can vary.
- Under the DTAA, the rate may be reduced. You should check the specific DTAA provisions between India and the Netherlands to determine the applicable rate.

4. **Procedure:**
- **TDS Deduction:** Deduct TDS on the payment to the Netherlands-based party at the applicable rate before making the payment.
- **TDS Return:** File TDS returns and provide a TDS certificate to the service provider.

### **3. Accounting and Compliance**

1. **Invoice Processing:**
- When you receive an invoice from the Netherlands-based party, ensure it includes all relevant details for TDS deduction.

2. **Payment and Documentation:**
- **TDS Payment:** Pay the deducted tax to the Indian government.
- **Documentation:** Maintain proper documentation of the transaction, including invoices, payment proofs, and TDS certificates.

### **Summary:**

- **Import of Services:** The services of dismantling and assembling the machinery are classified as import of services.
- **Service Tax/GST:** For services before July 1, 2017, service tax applies. For services after this date, IGST is applicable under the reverse charge mechanism.
- **TDS Requirement:** TDS needs to be deducted under Section 195. The rate will depend on the nature of the services and the DTAA provisions.
- **Compliance:** Ensure to follow the TDS and GST compliance requirements as per the applicable laws.

For precise guidance, especially concerning TDS rates under the DTAA and specific GST provisions, consulting a tax professional or legal advisor is recommended.

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