Hello Friends
Please clarify this issue on an urgent basis;
An indian company has entered into a contract with another indian company for consultancy services of power project. Now the consultant company has deputed some foreign nationals as employees for exeuting this project which is outside india.
My question whether TDS is to be deducted on this payment to Employees of foreign origin ?
Does it make any difference if the employee is Indian National ?
Hi Mr Deepak,
I will put forward my personal opinion in this regard.
First you have to see whether this particular sum would be taxable in the hands of the Recepient. As you have said you are making the payment to foreign nationals. So obviously they are Non Residents under the Income tax Act. For Non Residents only income which is earned/accrued in India or Income which is Received in India or Income which is earned & Received in India is taxable.
Meaning of Income earned/accrued in context of salary U/s 9(1)(ii) means " Income under the head "Salaries" for services rendered in India. Since this service is for power project outside india, it does not fall under this definition.
Hence Income from Salary, if service is rendered outside India in not deemed to accrue or arise in India. Hence this sum is not taxable in the hands of the Recipient.
We should now go to Section 192 of the Income tax act which deals with payment of Salary to Residents as well as non Residents.
" Any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income-tax......."
Since this sum is not "Chargeable to tax" under the head salaries there is no need to deduct TDS under sec 192.
Also please clarify if the payment is made within India or outside India. Also please clarify as to the exact arrangement with the consultant company. Whether it collects any consultancy fees? or whether salary is paid directly to foreign employees?
Hope i was helpful.
Regards,
Viggi
CAclubindia
