12 January 2022
1) We’re paying in USD via Credit Cards towards purchase of services like Server Hosting/Linkedin towards business usage. Shall we deduct TDS u/s 195, if yes at what Percentage we’ve to deduct (PAN is not available) and is there any supporting clause which mentions not to deduct TDS? 2) Payments were already made without deducting TDS, Whether to grossup for deduction of tax if TDS has to be deducted?
11 July 2024
Let's address your queries regarding TDS (Tax Deducted at Source) for payments made in USD towards services like server hosting and LinkedIn advertising:
### Query 1: TDS under Section 195
1. **Applicability of TDS under Section 195:** - **Section 195** of the Income Tax Act applies to payments made to non-residents (foreign companies) for any income other than salary. This includes payments for services rendered by them. - Since you are making payments in USD towards server hosting and LinkedIn advertising, and assuming these services are provided by non-residents without a Permanent Establishment (PE) in India, Section 195 would typically apply.
2. **TDS Rate under Section 195:** - The TDS rate under Section 195 depends on whether the country of the non-resident has a Double Taxation Avoidance Agreement (DTAA) with India. If there is a DTAA, you can apply the lower rate prescribed in the agreement. - In the absence of a DTAA or if the DTAA does not specify a lower rate, the TDS rate under Section 195 is generally 10% (plus applicable surcharge and cess).
3. **PAN Not Available:** - If the non-resident does not have a PAN in India, TDS should still be deducted under Section 195. - There isn't a specific clause that exempts TDS deduction under Section 195 solely based on the non-availability of PAN. TDS under Section 195 is mandatory unless specifically exempted or reduced under a DTAA.
### Query 2: Grossing Up for Tax Deduction
- **Grossing Up:** When TDS is deducted, it is deducted on the net amount payable after deducting taxes. Grossing up is the process of increasing the net amount to account for the TDS deduction so that the recipient receives the gross amount. - **Applicability:** Whether or not to gross up depends on the terms of your contract with the service provider. In many cases, grossing up is agreed upon to ensure that the recipient receives the agreed-upon amount without being affected by the TDS deduction. - **Legal and Practical Considerations:** Grossing up should be clearly defined in the contract to avoid any misunderstandings. It's important to discuss and agree on grossing up with the service provider beforehand to avoid disputes.
### Conclusion:
1. For payments made in USD towards services provided by non-residents (foreign companies) like server hosting and LinkedIn advertising, TDS should be deducted under Section 195 of the Income Tax Act. 2. The TDS rate is generally 10%, unless a lower rate is applicable under a Double Taxation Avoidance Agreement. 3. Grossing up should be considered if it is agreed upon in your contract with the service provider to ensure that the net amount received by them after TDS deduction meets their expectations.
Ensure compliance with TDS deduction, timely payment, filing of TDS returns, and issuance of Form 16A (if applicable) to the service providers. If you have specific doubts or need detailed advice tailored to your situation, consulting with a tax advisor or chartered accountant would be beneficial.
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