Payments to non residents.

This query is : Resolved

Ramachandran (Querist)
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11 November 2009 whether Income accuring or arising to non residnets through or from business connection in india is liable to TDS or not? if Yes what would be the rate of tax? if DTAA exists between India is Australia, then what rate would apply?

Nature of Income : professional service for food safety audit at the facility in india

status of the receipant: Company
amount involved : us$ 3100

CA SANJAY MUKHERJEE

CA SANJAY MUKHERJEE (Expert)
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11 November 2009 TDS is applicable. Rate depends on the nature of Income and status of the recipient and amount of payment. If the nature of payment is covered under DTAA then the specified rate under DTAA would be applicable

Sunil

Sunil (Expert)
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11 November 2009 For the professional service detailed by you, TDS is applicable irrespective of whether there is PE or not as per Section 9 of IT Act 1961. Rates in force is 30.9% for payment to individual and at rate for foreign companies if payment is to company. This service is covered mostly under Article 14 or 15 of Most DTAAs depending on the country and under Independent Personal Services. They too allow both States to Tax. However they impose a restriction of maximum a source state can withold as tax. As DTAA has over riding provisions, you can apply them if they are more beneficial to your payee.

For Australia, Article 14 of the DTAA has not given any relief for Companies providing professional services. Therefore You have to deduct as per Section 9.

It is not yet clear whether DTAA as per section 90 overrides the new section 206AA for compulsory PAN. More views are required for this. However to you it makes no difference as you will be deducting over 40% TDS.

I will check and let you know if your payment qualifies as Fees for Technical / Managerial / Consultancy Service under Section 9 and whether you can avail the lower rate for it.

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Sunil

Sunil (Expert)
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11 November 2009 Technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel.

Rate for Royalty & Technical Sevices for both non company and company For Agreements after June 1, 2005
Aggregate of:-
(AA) For royalties (I have not entered it as it is not applicable for you)
(BB) the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of ten per cent if such fees for technical services are received in pursuance of an agreement made on or after the 1st day of June, 2005;
(C) the amount of income-tax with which it would have been chargeable had its total income been reduced by the amount of income by way of royalty and fees for technical services.

In determining the taxability of the non resident, in your case if there is no PE in India and neither is their any Royalty. Therefore only Item (BB) is applicable to you. Item (AA) is for Royalty and Item (C) is if the foreign company has a Branch PE or a DAPE. As your entire fee is technical fee and there is no other income attributable, you just have to deduct as per (BB).

In your case, as you will not be using DTAA, you will have to provide PAN of Foreigner otherwise deduct 20% on the Royalty/Technical Fees.