We are seeking your valuable opinion on TDS applicability on Subscription service (Business lead generation subscription) procuring from US entity having No Permanent Establishment in India, they are providing the TRC and No PE declaration but not providing Form 10F. Aforeaid services are used for the acquisition of new customers and generating export revenue from these customers. Against these services, payment is made through credit card on automated card deduction on a monthly basis. The client not providing the wire transfer details hence we are not able to file Form 15CA/CB applicable part on the income tax portal. Please advise on whether TDS is required to be deducted under section 195 or Tax deductions under the equalization Levy for the import of services i.e. Subscription services, Cloud services.
09 July 2024
In the scenario described, where you are procuring subscription services from a US entity that does not have a Permanent Establishment (PE) in India, here's a breakdown of the tax implications:
1. **Tax Deduction at Source (TDS) under Section 195:** - Section 195 of the Income Tax Act pertains to TDS on payment to non-residents for services rendered outside India. - Since the US entity is providing subscription services remotely and does not have a PE in India, the payment you make to them falls under the purview of Section 195. - TDS is applicable at the rates specified in the Income Tax Act, unless reduced by a tax treaty between India and the US (if applicable). - The US entity has provided Tax Residency Certificate (TRC) and a declaration stating No PE in India, which are important documents to establish their tax status and eligibility for treaty benefits.
2. **Equalization Levy (EL):** - Equalization Levy is another form of tax applicable on specified services received from non-residents, particularly digital services. - Subscription services like business lead generation, if provided digitally or online, can potentially fall under the scope of Equalization Levy as per the provisions of the Finance Act. - The levy is currently at the rate of 2% on the gross amount of consideration for specified services received from non-residents. - If Equalization Levy applies and is applicable in this case, it would be an alternative to TDS under Section 195.
3. **Form 15CA/CB Filing:** - Form 15CA and 15CB are forms required for making remittances to non-residents under Section 195. - Form 15CA is a declaration of remittance and Form 15CB is a certificate from a Chartered Accountant. - Since the US entity is not providing wire transfer details, filing Form 15CA/CB might be challenging. However, consult with a tax advisor to explore alternative documentation or information that could suffice for filing.
**Recommendation:** - Given the information provided (TRC, No PE declaration), TDS under Section 195 is likely applicable unless exempted or reduced by a tax treaty. - Consider the applicability of Equalization Levy as an alternative or additional tax on the service. - Due to the complexities of international tax laws and documentation requirements, it is advisable to seek guidance from a qualified tax professional or Chartered Accountant who can ensure compliance with Indian tax regulations and help navigate the process of Form 15CA/CB filing.
Always ensure thorough documentation and compliance to avoid penalties or legal implications related to tax withholding on payments to non-residents.
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