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Applicability of Higher TDS rate of 20%

Rachit (Analyst) (913 Points)

02 April 2010

The CBDT press release dt 20/01/10 No. 402/92/2006-MC(04 of 2010) makes all transactions including those with non- residents liable for higher TDS rate of 20% in case PAN is not quoted.

But, the provisions of DTAA overrides the Income Tax Act, in case of inconsistency.

In such a situation,will this higher TDS rate of 20% be still applicable to transactions with Non- resident deductees having No PAN when reliance has been placed on the relevant DTAA?

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3 Replies

Amir (Learner) (4016 Points)
Replied 02 April 2010

Dear Rachit,

Good question bhai..............!

This notification covers the payment made to Non residents.

Although it is not mentioned anywhere but I think this notification cannot override the rate of Tax prescribed under DTAA.

First reason, what u mentioned DTAA Overrides the Income Tax Act

Second, Since TDS is only a mode of collection of Tax & in No case it can exceed the rate of Tax itself.

Just for ur reference, Below is the text of Notification originally posted by Uday Kiran

No.402/92/2006-MC (04 of 2010)

Government of India / Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

***

New Delhi dated 20th January 2010

PRESS RELEASE

A new provision relating to tax deduction at source (TDS) under the Income Tax Act 1961 will become applicable with effect from 1st April 2010. Tax at higher of the prescribed rate or 20% will be deducted on all transactions liable to TDS, where the Permanent Account Number (PAN) of the deductee is not available. The law will also apply to all non-residents in respect of payments / remittances liable to TDS. As per the new provisions, certificate for deduction at lower rate or no deduction shall not be given by the assessing officer under section 197, or declaration by deductee under section 197A for non-deduction of TDS on payments shall not be valid, unless the application bears PAN of the applicant / deductee.

2. All deductors are liable to deduct tax at the higher rate in all transactions not having PAN of the deductees on or after 1st April 2010. In order that there is no dispute regarding quoting / non-quoting of PAN or accuracy thereof, the law requires all deductees and dedutors to quote PAN of deductees in all correspondences, bills, vouchers and other documents sent to each other. All deductors are, therefore, advised to intimate their deductees to obtain and furnish their PAN so as to avoid TDS at a higher rate. All deductees,including non-residents having transactions in India liable to TDS, are advised to obtain PANby 31st March 2010 and communicate the same to their deductors before tax is actually deducted on transactions after that date.

3. The procedure for obtaining PAN is simple, inexpensive and quick. Application for

PAN can be filed in Form 49A to National Securities Depository Ltd. (NSDL) or Unit Trust

of India Investor Services Ltd. (UTIISL) or their intermediaries. Non-residents can apply

through the local embassy / consulate of India. Applications can also be filed, paid for or

tracked online through the Internet on the following web-sites:-

https://incometaxindia.gov.in/

https://incometaxindiaefiling.gov.in/portal/index.jsp

https://www.tin-nsdl.com/

https://www.utitsl.co.in/

4. The Central Board of Direct Taxes (CBDT) has issued Notification No.94/2009

relating to taxation of perquisites / profits in lieu of salary and Circular No.1/2010 for the

guidance of tax dedutors for salaries. These documents are available on the department’s web

site at https://incometaxindia.gov.in/

XXX

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CA Babit Khurana (learning is my passion) (338 Points)
Replied 02 April 2010

Dear Amir Sir,

But as per press release issued by CBDT, clearly mention that tds is applicable on NRI as well, and also give suggestion to NRI to take PAN no upto 31-03-2010 and give it to deductors present in india. Than what it is mean.

I think they are intentionally overidde DTAA.

Pl clearify if i am worng.

Thanks in advance