Tds on payment to non resident.

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

02 June 2012 If an Indian company is making payment to a non resident foreign broker for helping in imports/exports, is it liable for withholding tax u/s 195? The broker belongs to UAE and is not having any PE in India. Also Article 7 of DTAA between India & UAE specifies that business income of a resident of UAE would be taxable in UAE only. In this context, please guide whether Indian company has to deduct TDS or not?

Ca Anand Dubey

Ca Anand Dubey (Expert)
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02 June 2012 Yes section 195 will apply

Querist : Anonymous

Querist : Anonymous (Querist)

04 June 2012 Thanks Sir for your opinion. But Sec 195 applies to income chargeable under Income Tax Act 1961. Here in the above case, foreign agent is not having any PE in India and is operating outside India. In such a case, how can the income said to accrue or arise in India? Further DTAA always rules over Income Tax Act. In such a condition, according to Article 7, the income earned by the resident of UAE who is not having PE in India, is chargeable to tax in UAE and not in India. Article 7 is reproduced as under :

ARTICLE 7 - Business profits - 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting 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.

Please clarify in this context.

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Querist : Anonymous

Querist : Anonymous (Querist)