23 February 2024
Dear Experts, A company has taken technical services from a foreign company from kazakhstan. But since the foreign company has PAN number through their establishment in india. Should tax be deducted under 194J or 195.
11 July 2024
If the foreign company from Kazakhstan has a PAN number through their establishment in India, the tax deduction would typically fall under Section 194J of the Income Tax Act, 1961, rather than Section 195. Here’s why:
### Section 194J Overview:
- **Section 194J** pertains to TDS on fees for professional or technical services. It applies when a payment is made to a resident (including a foreign company with a PAN in India) for professional services, technical services, royalty, or non-compete fees.
- The rate of TDS under Section 194J varies depending on the nature of the payment: - **Fees for professional services:** TDS rate is 10%. - **Fees for technical services:** TDS rate is 2% (applicable from 1st April 2020 onwards).
### Applicability to Foreign Companies with PAN in India:
- If the foreign company from Kazakhstan has a PAN number in India due to their establishment here, it signifies that they are considered a resident for tax purposes under Indian tax laws. As a result: - Payments made to them for technical services would attract TDS under Section 194J at the rate of 2%. - This is applicable assuming the conditions for TDS deduction under Section 194J are met, such as the payment exceeding Rs. 30,000 in a single transaction or Rs. 1,00,000 in aggregate during the financial year.
### Section 195 Consideration:
- **Section 195** applies when a payment is made to a non-resident (foreign company without a PAN in India) for any income other than salary, including fees for technical services. The TDS rate under Section 195 varies based on the nature of income and relevant Double Taxation Avoidance Agreement (DTAA) rates, if applicable.
- Since the foreign company in your scenario has a PAN in India, it is treated as a resident for tax purposes concerning income sourced from India. Therefore, Section 195, which deals with payments to non-residents, would not apply in this case.
### Conclusion:
Given that the foreign company from Kazakhstan has a PAN number through their establishment in India, payments made to them for technical services would attract TDS under Section 194J of the Income Tax Act at the rate of 2%. Ensure compliance with TDS deduction, filing of TDS returns, and issuance of Form 16A (if applicable) to the foreign company for the services rendered. Always consider consulting with a tax advisor or chartered accountant for specific guidance tailored to your company's circumstances and to ensure full compliance with tax regulations.
CAclubindia
