AN Indian Company receives Consultation Service on a regular basis from its related Foreign Compnay. The said Foreign company doesn't have any base in India. Their Employees visit Indian Company once in a while, but that doesn't even exceed 90 days altogether in a Financial Year.
In this case, please advice me, whether the Indian Company has to deduct TDS on the Consultation Payments and at what rate(if yes)?
In case, the Foreign company's employees visit more than 90 days, what will be the effect?
Please, i request you to include the respective tax rates with section, if its applicable?
19 November 2009
Section 195 of the Act casts an obligation on a resident tax payer making payment to a non resident in respect of an income taxable in India to withhold tax at the rates applicable. The tax is not required to be deducted from the payments made outside India to a NR if the income of NR is not taxable in India. The income of the NR is taxable in India if it satisfies certain conditions.
As per section 5 the income of NR should have been either be received or deemed to be received in India or should be accrue or deemed to accrue in India for such income to be taxable in India.
As per section 9 the income of a resident by way of fees for service rendered would be treated as technical fees and will be deemed to accrue and arise in India, the income will be taxable in India with in the meaning of deeming provision under section 9 of the Act as the explanation 2 to section 9 (1) (vii)
However As per section 90 of IT Act one can take the benefit of provision of Double taxation Avoidance Agreements ( DTAA) on the payment of royalty if the recipient of the income from technical fees is a resident of a country with whom India has a DTAA. Currently India has DTAA’s with more then 75 Countries.
Since in your query it is not clear that what kind of services are being provided and the country of residence of non resident company also not clearly mentioned, in the absence of such information it is difficult to give any concrete advice, however from the language body of the query it seems that apparently TDS is applicable under section 195 @ 10.56%.
19 November 2009
Thank you very much for the prompt reply. The foreign Company mentioned above in my quiery is Belgium and the nature of payments are towards, Consultation fees, Designing Charges and Interest on amount borrowed.
CAclubindia
