TDS - Professional Fees

This query is : Resolved

CA Nilesh Sodhani (Querist)
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16 July 2009 Sir,

What % of TDS to be deducted for payment towards Professional Fees for services rendered by a company based at UK ?

Please help me out....

CA.ViVeK M ACA

CA.ViVeK M ACA (Expert)
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16 July 2009 If we are paying the sum to the foreign company then42.33% would be applicable .If it is approved by the government then concessional rate would be applicable

taxindiaconnect

taxindiaconnect (Expert)
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16 July 2009 No TDS is required to be deducted from such payments as mentioned in your query. 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. The tax is not required to be deducted from the payments made outside India to a NR if the income of NR is not taxable in India. The income of the NR is taxable in India if it satisfies certain conditions.

As per section 5 the income of NR should have been either be received or deemed to be received in India or should be accrue or deemed to accrue in india for such income to be taxable in India.

As per section 9 the income of a resident by way of fees for service for procuring the machinery would be treated as technical fees and will be deemed to accrue and arise in India, the income will be taxable in India with in the meaning of deeming provision under section 9 of the Act as the explanation 2 to section 9 (1) (vii)

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 including United Kingdom. As per article 12 of the said DTAA with UK the fees for technical Services will be taxable only if such services make available any technology or secret information to the resident payer in India. Since in your case the services are for professional nature which do not make available any such information, the fees paid is not taxable in India. So no TDS is required to be deducted from such payments. In case of any further clarification, please let me know.

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CA.ViVeK M ACA

CA.ViVeK M ACA (Expert)
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16 July 2009
In the course of business, an organisation may be required to make a variety of overseas payments for services such as royalty, knowhow, technical services, commission for procurement of orders, reimbursement of expenditures, and so on.

Section 195 of the Income-Tax Act governs the withholding tax provisions concerning all payments to non-residents. Again, India has Double Tax Avoidance Agreements (DTAAs) with more than 70 countries. As per the Indian tax law, the withholding tax to be applied on payments to non-residents shall be as per the domestic law or the DTAA, whichever is more beneficial to the recipient.

Under Section 195(2), the payer can approach his assessing officer (AO) and request for an authorisation for a nil or a lower rate if he is of the view that the whole or part of the payment to be made would not be income in the hands of the non-resident recipient.

It may also be pertinent to mention that the Supreme Court in the AP Transmission Corporation (239 ITR 587) case held that the authorisation under Section 195(2) is a must and in the absence of the same, income-tax shall be deductible on the gross payment by the remitter. But this decision was rendered for the assessment year 1967-68 when none of these CBDT circulars was in existence

Of course the final responsibility of withholding the correct rate of tax and the consequence of incorrect deduction will have to be faced by the remitter