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Can TDS on Income from abroad be claimed as Advance tax?

Nitin (CA Final Student) (78 Points)

06 April 2010

As per Double Taxation Avoidance Agreement (DTAA), if a person paying us any income from abroad (covered in DTAA) deducts TDS on such income u/s-195, then can this TDS be claimed as Advance tax paid in our Return of Income??

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12 Replies

Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
Replied 06 April 2010

In case there is any such DTAA in force with the country from which the income is received after deducting tax at source, then such tax deducted shall be considered under prepaid taxes.

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Nitin (CA Final Student) (78 Points)
Replied 06 April 2010

thanks sir.. but please eloborate..

how can we claim it to under Indian Income Tax authorities, since the person deducting the tax will remitt it to his local income tax authority.. shall we have to make an appeal for the refund of the same through CBDT to that country's authority? How is the flow happens here??

Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
Replied 06 April 2010

Actually, the assessee need not bother about how shall he get the claim of the tax paid or what is the procedure of the same. All these matters are done at the Govt level. All the assessee has to do is that submit the certificate of deduction of tax alongwith his ITR. All the procedure and the conditions are mentioned in the DTAA between those countries.

Amir (Learner) (4016 Points)
Replied 06 April 2010

Dear Nitin,

I am sorry but I dint get ur question, How can a person sitting abroad (Non Resident) deduct TDS on payment made to any person in India u/s 195..

I think u mean if Tax has been deducted in that other country & not under Indian Income Tax act??

First of all Bhai. the countries with which India has DTAA, the income arising in those countries is taxable in one country, so it wil either be taxable in India or in that other country.

Amol Sir, first of all happy to see u after long time...Hope u r going well.....

Sir I have one doubt in this relation becos I think Taxes paid in other country cannot be treated as prepaid taxes under Indian Income Tax Act..Further there is only one section i:e Relief u/s 91 which allows us to take the benefit of taxes paid in other countries but Sir it applies only in respect of those countries with which India has not entered in DTAA????

Nitin (CA Final Student) (78 Points)
Replied 06 April 2010

Amir,

If the deduction u/s 195 is made by anybody, obviously he can not treat it as an income and he must remitt it to his own local IT authority since he holds TAN with that authority..

But even my doubt is same as u asked Amol sir. How can he claim that TDS?

Amol sir,

As u said, in that case, if the person deducting tax gives certificate of deduction with his local TAN number, then while filing e-Return, how can we specify the prepaid tax against that TAN number. Will it accept or is there any such facility??

Please explain sir..

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Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
Replied 06 April 2010

Thanks a lot Amir. Actually I its been a long time i was not at CA Club.

Coming to the query, the DTAA is entered into so as to avoid the impact of Double Taxation. In case of a resident individual, his/her global income is taxed in India. So, in such case, if there is a country with whom DTAA is entered into with and according to the provisions of taxation of that particular country, tax is deducted at source from the income of such individual. Further, the same income shall be charged to tax in India also as for resident individual, the global income is charged to tax in India. So, in case if the individual is not getting the benefit of the tax paid in that country, then there is no use of such DTAA. I agree that relief is allowed for tax deducted by those countires with whom DTAA is not entered with, but the relief is allowed to a certain extent depending upon the circumstances and the provisions for the same. So, in my opinion, the tax credit is allowed in case tax is deducted by a country with which DTAA is entered with.

Amir (Learner) (4016 Points)
Replied 06 April 2010

Dear Nitin,

Bhai If u meant that (TDS deducted & remitted u/s 195) then Amol Sir is rite in saying that u just have to file the return & no separate procedure is required..Same way it will be claimed in the ITR as it would have been done had TDS been deducted by a Resident under anyother section.

Beacuse it is not necessary that Deductor is a resident or Non Resident in order to claim the credit of TDS Deducted...

Amol Sir,

Thank u so much for replying, I got what u r trying to say but Sir I still doubt that there is any clause under any DTAA where a particular Income is taxable in both countries...If u r aware then I would be grateful if u can quote that clause...

Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
Replied 06 April 2010

What i said is that the same income is not taxed in both the countries. As the income paying country has already deducted tax at source, it means that the income is charged there. Further, as the global income of any residen individual is charged in India, it means that it is going to be taxed again. For this purpose, the individual is given credit for the taxes paid in the income paying country. I have not read any DTAA, so i also dont have any idea about that. But the general idea behind any DTAA is what i explained.

Nitin (CA Final Student) (78 Points)
Replied 06 April 2010

Dear Amir and Amol sir,

I also understood the background and the objective of the DTAA.. But all that i was thinking about is the practical difficulties that may arise in collection of TDS certificate (the form of certificate) and the TAN number identification while entering details into the e-return..

If anybody has come across any such practical scenario, please explain..

Thanks a lot Amol sir and Amir..

Nicky (Chartered Accountant) (245 Points)
Replied 07 April 2010

Dear Nitin,

Section 195 only applies when an Resident is paying a non resident not vice versa, so in your case section 195 doesnot apply but DTAA would apply of the respective country which is normally called withholding tax, so the person sitting in a foriegn counrty need not apply for TAN and all he has to deposit tax in his country of residence and not in India (I think this a gross confusion that you are under)

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Nitin (CA Final Student) (78 Points)
Replied 07 April 2010

Dear Nicky,

You are right. 195 does not apply for the other way of Withholding tax. But what i just took 195 example. If it is the other way around for 195 i.e., if the income for an Indian assessee is paid by a foreign company after deducting the Withholding tax, then he will remitt it to his local IT authority. In that case, whether this Indian assessee can claim that as a Prepaid taxes in his Return of income??

Can you explain me this please?