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Foreign remittance (tds)

16 January 2012

I have a client who has a contract with an individual lady (Mrs X) in Europe where Mrs.X would send tourists from different countries to India . Our client , then, provides the services to the tourists India.

My client has to pay $1000 monthly for this Inbound service to Mrs.X.

I have few questions :-

1.) Do we have to deduct TDS while making foreign remittance?

2.) If yes, what would be the rate and the category?

Mrs X does not have any PE in India.

Any early reply would be appreciated.Please treat it as urgent

Regards

Mayank Kapoor

09871009350

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6 Replies

CA. Gopi Vijayaragavan (CA in Service) (70 Points)
Replied 16 January 2012

Dear Kapoor,

Payments to Non resident would be subjected to TDS only if that payment is chargeable to Income tax in India. If it is not taxable, it is not subjected to TDS in India. - Sec 195

Therefore, it is first to determine such payment is liable to tax india in Mrs.X's hands.

Non Resident's indian income alone is taxable in India. For deciding an income is an indian income, income must be accrued or deemed to accrued in india. -Sec 5

As per Section 9(1)(i), Income, directly or indirectly or through from Business connection in India shall be taxable in india being deemed to accrue or arise india.

In My Opinion, present situation is not falls under the term "Business Connection" as defined in Explanation 2 to Section 9 (It may be go throughed).

Therefore, it is not taxable in India and consequently not subjected to TDS.