Incentive to non resident
This query is : Resolved
19 December 2011
Dear Sir,
I am a new ca in practice. My doubt is regarding the certification in form 15CB (Rule 37BB).
One of my client (a hospital) has entered in to a contract with an Non Resident (foreign citizen) to canvass patients from abroad.
According to the agreement, the Non Resident agent has to canvass patients from abroad to this hospital. A fixed perecentage of the hospital bill has to be paid as incentive to this Non Resident agent.
Now, inorder to transfer the incentive to the account of the Non Resident, they need a certificate from CA in form 15CB. My doubts are:
1. The TDS rate for commission is 10% (Sec 194H) . But this agent has no PAN Card. So, is it compulsory to deduct 20% ?
2. The Non Resident agent is a citizen of Nigeria, but the amount has to be send to his account in New York. There is no DTAA with Nigeria. Shall I consider the DTAA with USA ?
3. There is no mention about the tax on commission in the DTAA with USA. Is it possible to avoid deduction saying that there is no rate as per DTAA ?
4.Disallowance under Sec 40(a)(i) is applicable to this payment ? (that section is worded as "interest, royalty,FTS or other sum").
Please advise me at the earliest.
Thanks in advance .....
vinodaca74@gmail.com
I am a new ca in practice. My doubt is regarding the certification in form 15CB (Rule 37BB).
One of my client (a hospital) has entered in to a contract with an Non Resident (foreign citizen) to canvass patients from abroad.
According to the agreement, the Non Resident agent has to canvass patients from abroad to this hospital. A fixed perecentage of the hospital bill has to be paid as incentive to this Non Resident agent.
Now, inorder to transfer the incentive to the account of the Non Resident, they need a certificate from CA in form 15CB. My doubts are:
1. The TDS rate for commission is 10% (Sec 194H) . But this agent has no PAN Card. So, is it compulsory to deduct 20% ?
2. The Non Resident agent is a citizen of Nigeria, but the amount has to be send to his account in New York. There is no DTAA with Nigeria. Shall I consider the DTAA with USA ?
3. There is no mention about the tax on commission in the DTAA with USA. Is it possible to avoid deduction saying that there is no rate as per DTAA ?
4.Disallowance under Sec 40(a)(i) is applicable to this payment ? (that section is worded as "interest, royalty,FTS or other sum").
Please advise me at the earliest.
Thanks in advance .....
vinodaca74@gmail.com
19 December 2011
QUESTION REG TAX DEDUCTION ARISES ONLY IF INCOME OF NR IS TAXABLE IN INDIA. INTHIS CASE IF THE NR HAS NO PE IN INDIA AND SERVICES ARE RENDERED FROM OUTSIDE INDIA THEN NO INCOME IS TAXABLE IN INDIA HENCE NO TAX DEDUCTION
REFER TO CIT V. EON TECHNOLOGY P LTD 42(I) ITCL 424(DEL-HC)
CA MANOJ GUPTA
JODHPUR
09828510543
REFER TO CIT V. EON TECHNOLOGY P LTD 42(I) ITCL 424(DEL-HC)
CA MANOJ GUPTA
JODHPUR
09828510543
20 December 2011
Thank you sir. Can you please comment about the word "other sum" in Sec. 40(a)(i) ? Is it cover all payments including incentive, commission etc. ? Or,the scope of that section is restricted to interest, royalty & FTS only ?
29 July 2024
Here's a detailed breakdown of your queries regarding the certification in Form 15CB and the related tax implications for payments to a non-resident agent:
### **1. TDS Rate and PAN Requirements**
- **TDS Rate for Commission (Section 194H):** For payments to non-residents for commission or brokerage, the TDS rate under Section 194H is generally 10%. However, if the non-resident does not have a PAN, the TDS rate is 40% as per Section 206AA. Since your non-resident agent does not have a PAN, you must deduct TDS at 40%.
### **2. DTAA Considerations**
- **DTAA with USA:** Since there is no DTAA between India and Nigeria, the applicable DTAA would be with the country where the payment is actually received. In your case, the payment is being transferred to New York, USA. Hence, you would refer to the DTAA with the USA.
- **DTAA Provisions:** If the DTAA with the USA does not specify a rate for commission payments, it would mean that the domestic rate (40% for non-PAN cases) applies, unless the DTAA allows a lower rate or exemption.
### **3. DTAA Rate Application**
- **No Mention in DTAA:** If the DTAA with the USA does not specify a rate for commission, you cannot avoid TDS deduction based on the absence of a rate. The domestic rate of 40% (due to no PAN) will be applicable.
### **4. Applicability of Section 40(a)(i)**
- **Section 40(a)(i) Disallowance:** Section 40(a)(i) pertains to disallowance of expenses that are not deductible due to non-compliance with TDS provisions. The section mentions that any expenditure (including interest, royalty, FTS, or "other sum") that is not subject to TDS deduction as per the Act, is disallowed.
- **Scope of "Other Sum":** The term "other sum" in Section 40(a)(i) covers any other types of payments not explicitly mentioned in the section but requires TDS to be deducted. It includes payments like commissions, incentives, etc.
### **Form 15CB Certification**
- **Purpose of Form 15CB:** Form 15CB is used for certifying the correctness of tax compliance with regard to remittances to non-residents. It ensures that the correct amount of tax has been deducted and deposited to the government.
- **Certificate Issuance:** When issuing Form 15CB, you must ensure that TDS has been correctly deducted and deposited as per the applicable rate. In your case, with no PAN for the non-resident, TDS at 40% needs to be deducted.
### **Summary of Actions:**
1. **Deduct TDS at 40%** due to the non-resident agent’s lack of PAN.
2. **Refer to DTAA with the USA** for any additional considerations, but if there is no specified rate, apply the domestic rate.
3. **Form 15CB Certification:** Ensure that TDS has been deducted at the correct rate and provide the Form 15CB after verifying all details.
### **Steps for Form 15CB:**
1. **Verify Tax Deduction:** Confirm that TDS has been deducted at 40%.
2. **Complete Form 15CB:** Certify the deduction and compliance as per the applicable rates.
3. **Submit Form 15CA:** Submit Form 15CA along with Form 15CB to the Income Tax Department before remitting the payment.
This approach ensures compliance with both domestic tax laws and international tax treaties, and it avoids potential disallowance of expenses under Section 40(a)(i).
### **1. TDS Rate and PAN Requirements**
- **TDS Rate for Commission (Section 194H):** For payments to non-residents for commission or brokerage, the TDS rate under Section 194H is generally 10%. However, if the non-resident does not have a PAN, the TDS rate is 40% as per Section 206AA. Since your non-resident agent does not have a PAN, you must deduct TDS at 40%.
### **2. DTAA Considerations**
- **DTAA with USA:** Since there is no DTAA between India and Nigeria, the applicable DTAA would be with the country where the payment is actually received. In your case, the payment is being transferred to New York, USA. Hence, you would refer to the DTAA with the USA.
- **DTAA Provisions:** If the DTAA with the USA does not specify a rate for commission payments, it would mean that the domestic rate (40% for non-PAN cases) applies, unless the DTAA allows a lower rate or exemption.
### **3. DTAA Rate Application**
- **No Mention in DTAA:** If the DTAA with the USA does not specify a rate for commission, you cannot avoid TDS deduction based on the absence of a rate. The domestic rate of 40% (due to no PAN) will be applicable.
### **4. Applicability of Section 40(a)(i)**
- **Section 40(a)(i) Disallowance:** Section 40(a)(i) pertains to disallowance of expenses that are not deductible due to non-compliance with TDS provisions. The section mentions that any expenditure (including interest, royalty, FTS, or "other sum") that is not subject to TDS deduction as per the Act, is disallowed.
- **Scope of "Other Sum":** The term "other sum" in Section 40(a)(i) covers any other types of payments not explicitly mentioned in the section but requires TDS to be deducted. It includes payments like commissions, incentives, etc.
### **Form 15CB Certification**
- **Purpose of Form 15CB:** Form 15CB is used for certifying the correctness of tax compliance with regard to remittances to non-residents. It ensures that the correct amount of tax has been deducted and deposited to the government.
- **Certificate Issuance:** When issuing Form 15CB, you must ensure that TDS has been correctly deducted and deposited as per the applicable rate. In your case, with no PAN for the non-resident, TDS at 40% needs to be deducted.
### **Summary of Actions:**
1. **Deduct TDS at 40%** due to the non-resident agent’s lack of PAN.
2. **Refer to DTAA with the USA** for any additional considerations, but if there is no specified rate, apply the domestic rate.
3. **Form 15CB Certification:** Ensure that TDS has been deducted at the correct rate and provide the Form 15CB after verifying all details.
### **Steps for Form 15CB:**
1. **Verify Tax Deduction:** Confirm that TDS has been deducted at 40%.
2. **Complete Form 15CB:** Certify the deduction and compliance as per the applicable rates.
3. **Submit Form 15CA:** Submit Form 15CA along with Form 15CB to the Income Tax Department before remitting the payment.
This approach ensures compliance with both domestic tax laws and international tax treaties, and it avoids potential disallowance of expenses under Section 40(a)(i).
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