TDS on payment of Commission to Foreigner

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josef (Querist)
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29 July 2008 Please guide me whether tax is required to be deducted at source on payment of Commission to foreign agent for arranging the materials to be purchased by my client. If yes, please give the reference of the section for provision and rate of TDS

CA CS CIMA Prakash Somani

CA CS CIMA Prakash Somani (Expert)
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30 July 2008 In my view , TDS is not applicable in case of payments to him .
TDS is applicable only when the INCOME is chargeable under Income Tax Act. This on account of Section 4[2] of the I T Act.So the first issue to decide whether RECEIPT by foreign agent is taxable in India.

Since foreign agent is Non Resident , his income received in India
or accrued in India or deemed to be received or accrued in India. If the payment is made outside India, it is certainly not received in India. As far as accrual is concerned , since the services are rendered out side India also does not bring the amount within the ambit of deeming provision as provided in Section 9 of the I T Act.

In this regard , you should note that the general rule of TDS in case of payments to Non Resident is given under Section 195 of the I T Act. However, if the services are given outside India by a Non Resident who is also paid outside the country , does not fall under the provision u/s 195 of the I T Act .
Reference: Section 195, Section 5(2) and section 9.