Tax deducted by a srilanka client from the service charges

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Ramaswamy Thiyagarajan (Querist)
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26 February 2017
I am working for a firm in Bangalore providing Information Technology Service. We deputed our staff to Srilanka to provide IT Service at clients location.. We are Income tax Assesses in India. Our clients deducted Income tax from our payment, paid to the Taxation Authorities in Srilanka and issued Certificates. As per India-Srilanka Double Taxation Avoidance Agreement .can we adjust that tax in our tax dues in India. We have shown the transactions, payments received and tax deducted in our accounts in INR (As per exchange rates noted in Bank's Credit Advise). All payments are in USD through Bank. In their Tax Deduction Certificates they had shown the tax payment made in Srilankan Rupee and noted the corresponding value in USD. Our adviser says as the tax deducted in Srilanka and paid to that Government we have to have proof that the amount reached Indian Indian Tax Department.If we could not adjust that tax deduction in our tax dues we will be at a loss. We have shown the Income from that transaction and if we could not adjust the tax deduction for it how can we get back that money. Is there any specific clause in Srilanka-India Double Taxation Avoidance Agreement for Tax Deduction

Anand

Anand (Expert)
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01 March 2017 Article 23 "METHODS FOR ELIMINATION OF DOUBLE TAXATION" of the DTAA between India and Sri Lanka is relevant. This Article provides that for income which is taxable in India and in Sri Lanka, deduction is to be allowed from the tax, the tax that is paid in Sri Lanka. However, it may be noted that the deduction cannot exceed the tax in India on the said income.
CBDT has now notified Rule 128 under the Income-tax Rules, 1962 (the Rules) vide its Notification No. 54/2016 dated 27 June 2016.

Credit of any foreign tax shall be allowed on furnishing the following documents by the
assessee, namely:-
(i) a statement of income from the country or specified territory outside India offered
for tax for the previous year and of foreign tax deducted or paid on such income in
Form No.67 and verified in the manner specified therein;
(ii) certificate or statement specifying the nature of income and the amount of tax
deducted therefrom or paid by the assessee,-
(a) from the tax authority of the country or specified territory outside India; or
(b) from the person responsible for deduction of such tax; or
(c) signed by the assessee:
Provided that the statement furnished by the assessee in clause (c) shall be valid if it
is accompanied by,-
(A) an acknowledgment of online payment or bank counter foil or challan for
payment of tax where the payment has been made by the assessee;
(B) proof of deduction where the tax has been deducted.
(9) The statement in Form No.67 referred to in clause (i) of sub-rule (8) and the certificate or the statement referred to in clause (ii) of sub-rule (8) shall be furnished on or before the due date specified for furnishing the return of income under sub-section (1) of section 139, in the manner specified for furnishing such return of income.

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Ramaswamy Thiyagarajan

Ramaswamy Thiyagarajan (Querist)
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19 April 2017 Thank you Mr.Anand for your reply. In our case tax was paid by our clients on our behalf and obtained Tax Paid Certificate in our favour from Srilanka Tax Authorities. They had deducted the tax payment from the payment due to us. It is not TDS Certificate. It is Tax Paid Certificate in our favour. Now our Tax Consultant wants to know at which column of online return (for Proprietorship), the claim has to be made.

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