01 May 2009
The Income of the a non resident on account of the advertisement charges would deemed to accrue or arise in India as per section 9 of Income tax Act. Section 195 Provides that any person making payment to a non resident needs to withhold tax from the income which are taxable in India. Thus the resident making payment to a non resident on account of advertisement charges need to withhold tax from such payments under section 195 of the Act. No rates are prescribed in the Income tax Act for withholding tax from such payments to non resident. In this case you need to deduct Tax at the rate of 40% or 30% + applicable surcharge depending upon the legal status of the non resident from the entire payment made to the him. However if you think that the entire amount of payment may not be the income of the non resident in India, You may approach Income tax department u/s 197(2) of the IT act to determine the rate of tax at which TDS should be deducted in this case.
Under section 90 of the IT Act a payee being the resident of a contracting state with whom India has Double Taxation Avoidance Agreement, he may claim the benefit of the agreement if it is more beneficial to him. But with Baharin India do not have any such agreement, thus the nest course would be to apply u/s 197(2) to AO for determination of the tax rate.
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