TDS rate

This query is : Resolved

Rachit (Querist)
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05 April 2010 Your views on the below mentioned issue is solicited.

Wef 01-04-2010, Higher TDS @ 20% becomes applicable in the event the deductee is unable to provide PAN.

Based on CBDT press release dt 20/01/10 No. 402/92/2006-MC(04 of 2010) this revised provision is even applicable to Non-residents. In most cases, these foreign parties do not hold an Indian PAN number as they who would be having just one-off transaction with the Indian parties.

Accordingly this higher rate of TDS is applicable where TDS is deductible u/s. 195

Queries:

1) Now, if we rely upon the TDS rate as prescribed under DTAA and not as mentioned u/s.195, will this provision of higher TDS rate apply in the event the foreign party does not provide PAN?

2) The provisions of DTAA override the Income Tax Act, in case the same are beneficial to the assessee. In order to rely on DTAA whether it is mandatory to obtain the No PE declaration and Tax Residency certificate of the foreign party or can we apply the DTAA withholding tax rates without these documents?

VIKAS AGGARWAL

VIKAS AGGARWAL (Expert)
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05 April 2010 Dear Rachit,

i know the provision of section 206AA (higher tax deduction @ 20%) are very harsh on foreign remittance. Folowing are my views on the provision of section 206AA.

1.The starting language of section 206AA is 'NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT' it means the provision of section 206AA have overriding effect on whole of the act. The provision of section 92 which talks about the benefits of tax teaty is also override by section 206AA therefore in case we do not have pan of non resident we will have to deduct tax @ 20% instead of the fact that tax treaty provides lower tax rate.

In order to apply tax treaty rate we need to check the tax residency of payee and the business connection of payee in INDIA. some time it is very difficult to check the same therefore on the safer side we take the declaration from payee for tax residency and PE. But it does not required by law anywhere. You can also apply the DTAA rate without have above declaration but you need to have sufficient documents to prove tax residency and PE issue of payee.

hope above will clear your query.