TDS

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Hiral (Querist)
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28 May 2009 A company has received a quotation from a company in USA.
The price quotation by the
supplier mentions that "The price includes free technical support by email
or phone. This is a perpetual license and there are no additional
maintenance fees."
Under the circumstances please advise if TDS is required to be deducted and
if Foreign remittance certificate is required to be taken.

taxindiaconnect

taxindiaconnect (Expert)
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28 May 2009 Please provide the following information to enable me to answer your query exactly –
- Exact Nature of the services rendered by Non resident to you. Is it a supply of equipment and along with that the services are required to be provided to make that equipment workable here in India.
- Whether he will provide services in India or not if yes what would be the period of stay.
- The status of the service provider whether individual firm or company.
- Any contract of provision of services.

In the absence of such information I can only say that section 195 of the Act casts an obligation on an resident tax payer making payment to a non resident in respect of an income taxable in India to withhold tax at the rates applicable.

Since as per section 9 the income of a resident by way of fees for technical fees will be deemed to accrue and arise in India, the income will be taxable in India. The retainer ship income will be deemed to accrue and arise in India under section 9 treating it as the technical fees as per explanation 2 to section 9 (1) (vii)of the Act.

Section 115 A of Income Tax Act provide a concessional rate of tax @ 10% on non resident earning income by way of royalty in India pursuant to a contract entered on or after 1st June 2005. Need not mention that the rate of tax also needs to be enhanced by the amount of applicable surcharge and the cess.

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. India has a DTAA with USA and as per article 12 of that treaty the tax rate is 10 %. On this tax no SC and EC is applied.

In case you need further clarification, please let me know.