27 September 2011
Whether TDS(Income Tax) is deductible from the payments to a Foreign Contractor of Netherland whom India has DTAA Treaty. If Yes, at what rate as the Foreign Contractor is not having PAN Number and how it will be shown under TDS Return without PAN Number.
there is a specific mention of permanent establishment in the DTAA with Netherland as under:
"The profits of an enterprise of one of the States shall be taxable only in that State unless the enterprise carries on business in the other State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment".
What is the meaning of this permanent establishment. I would like to mention that there is contractor of netherland who has to under take the job of development of "Hockey Surface Ground" in Mumbai" within a stipulated period say six months to one year". Whether the contractor will come under the permanent establishment category. there is no specific mention of TDS in the DTAA.
27 September 2011
A new section 206AA has been introduced in the financial year 2010-11. According to this new section 206AA tax will be deducted at the rate higher of prescribed rate or 20% in the case of non-submission of the PAN. Income tax department also stated that all the financial transaction without PAN will attract tax from 1st of April 2010. Income tax department also made mandatory to mention PAN to both the deductor and deductee of TDS. Income tax department has stated that no lower rate of tax will be allowed to any non resident as well as foreign companies if PAN Number not furnished with the return as well as on other documents. And the rate of TDS will be not lower and will be @ 20%.
However if any foreign company has not PAN number at the time of return, it must apply PAN and afterwards after quoting PAN number, the company can claim for the refund of tax.
28 September 2011
For definition of a permanent establishment (PE) you may refer this link http://law.incometaxindia.gov.in/DIT/intDtaa.aspx#
PE definition specifically includes "a building site or construction, installation or assembly project where such site or project continues for a period of more than six months". Therefore from above, the foreign contractor seems to have a PE in India and the payments for the services shall be liable to tds.
Also consider tds rate u/s 195 which may be about 30% on this transaction.
CAclubindia
