Tds applicability of nri payment
This query is : Resolved
09 October 2012
Indian insurance company wants to make payment to USA based company which does not have PE in india. payment is for consignment sent to usa which was damaged in transit and to compensate this loss insurance company wants to make payment to buyer for loss of goods and to company for making survey at USA.
12 October 2012
Any answer on That note
27 July 2025
Here’s a breakdown of **TDS applicability on payments by an Indian insurance company to two types of USA-based entities** for:
* **Compensation for loss of goods damaged in transit (paid to the buyer in the USA)**
* **Payment to a USA company for conducting the survey**
---
## 1. **Payment to USA buyer as compensation for loss of goods (damaged in transit)**
* This is **compensation or damages paid** for loss of goods.
* Generally, compensation for loss/damage is considered a **capital receipt or non-business income** for the recipient.
* It is **not income from business or profession**, so **no TDS under Income Tax Act** applies.
* Also, since this is not a payment for any service rendered or income earned in India, **TDS is not applicable**.
* **No Section applies**, and this is a **non-taxable receipt** from TDS viewpoint.
---
## 2. **Payment to USA company for conducting survey (survey charges)**
* This is a **payment for services rendered outside India**.
* As per Indian Income Tax Act **Section 195**, any payment to a non-resident for services rendered or to be rendered in India is subject to TDS.
* Since the USA company **does not have a Permanent Establishment (PE) in India**, whether TDS applies depends on:
* **Where the services are rendered?**
If the survey was conducted **outside India**, the income is **not deemed to accrue or arise in India**, so **no TDS**.
* **Nature of service and DTAA (Double Taxation Avoidance Agreement)**
India-USA DTAA generally taxes business profits only if there is a PE in India.
Without PE, such service income outside India is not taxable in India.
* So, **TDS under Section 195 is generally NOT applicable** on survey fees paid to USA company without PE if services are rendered outside India.
---
## **Summary Table**
| Payment Type | TDS Applicability | Relevant Section | Reason |
| ------------------------------------------- | ----------------- | ---------------- | -------------------------------------- |
| Compensation to USA buyer for loss of goods | No | N/A | Compensation, not income from services |
| Survey charges paid to USA company (no PE) | No (usually) | Section 195 | Services rendered outside India, no PE |
---
## **Important Notes:**
* If the USA company had PE in India, TDS would apply on payments attributable to PE.
* For payments to NRIs or foreign entities, always check **DTAA provisions** to avoid double taxation or incorrect TDS.
* It is good practice to obtain a **No Objection Certificate (NOC) or Tax Residency Certificate (TRC)** from the foreign party to support DTAA claims.
---
* **Compensation for loss of goods damaged in transit (paid to the buyer in the USA)**
* **Payment to a USA company for conducting the survey**
---
## 1. **Payment to USA buyer as compensation for loss of goods (damaged in transit)**
* This is **compensation or damages paid** for loss of goods.
* Generally, compensation for loss/damage is considered a **capital receipt or non-business income** for the recipient.
* It is **not income from business or profession**, so **no TDS under Income Tax Act** applies.
* Also, since this is not a payment for any service rendered or income earned in India, **TDS is not applicable**.
* **No Section applies**, and this is a **non-taxable receipt** from TDS viewpoint.
---
## 2. **Payment to USA company for conducting survey (survey charges)**
* This is a **payment for services rendered outside India**.
* As per Indian Income Tax Act **Section 195**, any payment to a non-resident for services rendered or to be rendered in India is subject to TDS.
* Since the USA company **does not have a Permanent Establishment (PE) in India**, whether TDS applies depends on:
* **Where the services are rendered?**
If the survey was conducted **outside India**, the income is **not deemed to accrue or arise in India**, so **no TDS**.
* **Nature of service and DTAA (Double Taxation Avoidance Agreement)**
India-USA DTAA generally taxes business profits only if there is a PE in India.
Without PE, such service income outside India is not taxable in India.
* So, **TDS under Section 195 is generally NOT applicable** on survey fees paid to USA company without PE if services are rendered outside India.
---
## **Summary Table**
| Payment Type | TDS Applicability | Relevant Section | Reason |
| ------------------------------------------- | ----------------- | ---------------- | -------------------------------------- |
| Compensation to USA buyer for loss of goods | No | N/A | Compensation, not income from services |
| Survey charges paid to USA company (no PE) | No (usually) | Section 195 | Services rendered outside India, no PE |
---
## **Important Notes:**
* If the USA company had PE in India, TDS would apply on payments attributable to PE.
* For payments to NRIs or foreign entities, always check **DTAA provisions** to avoid double taxation or incorrect TDS.
* It is good practice to obtain a **No Objection Certificate (NOC) or Tax Residency Certificate (TRC)** from the foreign party to support DTAA claims.
---
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