27 May 2009
Please anyone Clarify - We have a export business on orders procured on Commission basis(Fixed Amount). Our Foreign Agent(Non-Resident Corporate Assessee) wants to raise a invoice as Retainer fees for USD 5000 per month (instead of Commission).Whether this is exempted from TDS like Commission payments vide Circular no. 786 dt.7th Feb,2000, or attracts TDS Deduction ?
27 May 2009
Dear your query needs to be elaborated further. Following information will help to ascertain the tax liability -
- In what capacity he may be appointed your retainer. - What would be the services rendered by him. - Whether he will provide services in India or not. - Any contract of provision of services - The country of residence of the payee.
In the absence of such information the tax would be deducted u/s 195 @ 10.56% as – Section 195 of the Act casts an obligation on an resident tax payer making payment to a non resident in respect of an income taxable in India to withhold tax at the rates applicable.
Since as per section 9 the income of a resident by way of fees for technical fees will be deemed to accrue and arise in India, the income will be taxable in India. The retainer ship income will be deemed to accrue and arise in India under section 9 treating it as the technical fees as per explanation 2 to section 9 (1) (vii)of the Act.
Section 115 A of Income Tax Act provide a concessional rate of tax @ 10% on non resident earning income by way of royalty in India pursuant to a contract entered on or after 1st June 2005. Need not mention that the rate of tax also needs to be enhanced by the amount of applicable surcharge and the cess.
However As per section 90 of IT Act one can take the benefit of provision of Double taxation Avoidance Agreements ( DTAA) on the payment of royalty if the recipient of the income from technical fees is a resident of a country with whom India has a DTAA. Currently India has DTAA’s with more then 75 Countries.
In case you need further clarification, please let me know.
28 May 2009
Thanks for your immediate response.I am pleased to submit the following for your reference: We (Indian company)have appointed XYZ co.,USA, as Retainer, for marketing our Companys products in USA. Towards the same,We pay a sum of USD 5000 p.m. as Retainer Fees.Will this amount be exempted from TDS (like Commission payments to foreign agents of Indian Exporters - exempt from TDS under IT Circular No.786 Dt.7/2/2000) or Attracts TDS under 195.Please Clarify.
29 May 2009
Though in your case the amount paid will not be exepmt for the reason of circular no 786, however because the country of resident as mentioned by you is USA, the treaty on double taxation avoidance agreement between India and USA will apply. As per article 12 of that treaty any technical or consualtuacy fees payable to a resident of USA will be taxable in USA only if it makes available any technology or process etc to the payer. Since from your query it seems that there is no such make available condition is present, the fees payable as retainership is not taxable in India Hope this resolves your query. Please let me know if you have further query. Please do let me know the reason for the negative gesture you have forwarded on my earlier response so as to improve in future.
29 May 2009
Thanks for your advice. This will help us to diffferentiate the sales commission and Retainer Fees, paid to Non-Resident Corporate Assessee based in USA. I am very thankful for your timely reply and there is no negative gesture.Sorry .
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