Tds on foreign payments

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Suhas M (Querist)
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24 October 2012 Dear All,

Our company(Indian Entity) is paying Monthly Management/corporate charges to our parent company (Foreign Entity). As our parent company don’t have PAN No. please suggest us do we need to deduct withholding Tax @ 20% (as per DTAA) or 21.012% as per (Sec 195). There are differences of opinions regarding the same b/w our Internal & External auditors. So kindly provide your valuable suggestions on the same.

Thanks in advance,
M S Rao

@VaibhavJ

@VaibhavJ (Expert)
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24 October 2012 Hi

Here you have to also consider S.206AA.

It is overriding section to Chap.XVIIB.

“(1) Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely :

(i) at the rate specified in the relevant provision of this Act; or

(ii) at the rate or rates in force; or

(iii) at the rate of 20%.”

Rgds//Vaibhav
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Suhas M

Suhas M (Querist)
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24 October 2012 Dear Mr. Vaibhav,

Thank you very much for your input.

Section 206AA also states that if the deductee fails to provide PAN No tax shall be deducted at the higher of the following rates, namely:—

(i) at the rate specified in the relevant provision of this Act; or

(ii) at the rate or rates in force; or

(iii) at the rate of twenty per cent.

in this case higher of the following rate may include TDS @ 21.012% (TDS @ 20% + Surcharge & Cess).

So kindly request you to clarify the same.

Thanks in Advance,

M S Rao.

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@VaibhavJ

@VaibhavJ (Expert)
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24 October 2012 Yes!! 21.012%

Rgds//Vaibhav
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Arihanth Jain

Arihanth Jain (Expert)
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28 October 2012 Mr Suhas,

Just a small suggestion that you also look into the nature of transaction/treaty.
Some of such payments made are not be liable to TDS as per DTAA. Howvever S 206AA will mandate TDS. In that case just apply for a PAN & remit money without TDS.

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