27 January 2021
I am thinking of taking a copy-editing service from a UK foreign national. He is not an NRI. For this, I need to pay about eighty thousand INR through an intermediary freelancing websites. Though I am a freelancer myself in my own profession, the service I plan to take is not related to my profession at all. Could somebody answer if I need to to pay any tax on the payment I am going to make? Note the amount to be paid is not my income, rather it is my expenditure for a private work/use that is not my business. The service itself is business to the foreign national. He does not have any office in India and he himself is a professional freelancer.
11 July 2024
In the scenario you described, where you are paying a UK national for copy-editing services through an intermediary freelancing website, here are the tax implications you need to consider:
### Tax Implications:
1. **Tax Deducted at Source (TDS):** - As per Indian tax laws (Section 195 of the Income Tax Act), payments made to non-residents (foreign nationals in this case) for services rendered outside India are subject to TDS, unless specifically exempted. - The rate of TDS applicable on such payments to non-residents is usually 10% (plus applicable surcharge and cess), unless reduced under a tax treaty between India and the UK or unless the payment is specifically exempted.
2. **Exemption and Lower TDS Rate:** - If there is a tax treaty between India and the UK, such as the Double Taxation Avoidance Agreement (DTAA), it may provide for a lower rate of TDS or exemption from TDS on payments for certain types of services. - You would need to check the specific provisions of the tax treaty to determine if the payment for copy-editing services is covered and whether any reduced rate or exemption applies.
3. **Payment Mechanism (Through Intermediary):** - Payments made through freelancing platforms act as intermediaries. Typically, these platforms deduct applicable taxes (including TDS) on behalf of the payer (you) before transferring funds to the recipient (UK national). - Ensure that the freelancing platform complies with Indian tax laws by deducting TDS, if applicable, and issuing Form 16A or other required documents.
### Steps to Ensure Compliance:
- **Consult a Tax Advisor:** Given the specific nature of the transaction and potential applicability of tax treaties, it is advisable to consult with a qualified tax advisor or chartered accountant who can provide guidance tailored to your situation.
- **Check Tax Treaty:** Verify if there is a tax treaty between India and the UK, and review the provisions related to payments for professional services. This will clarify the applicable TDS rate or any exemption.
- **Documentation:** Ensure proper documentation is maintained for the payment, including invoices, contract/agreement with the freelancer, and any communication related to the service provided.
### Conclusion:
While the payment you are making is for a service and not your income, Indian tax laws require TDS to be deducted on payments made to non-residents for services rendered outside India, unless exempted under the tax treaty. Understanding these provisions and ensuring compliance will help you manage your tax obligations effectively.
CAclubindia
