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Tax implication on hire of foreign professional

Barun (Accountant) (24 Points)

30 January 2023

Dear sir /madam

I can’t find a clear view/details regarding an issue of my client. My client is engaged in profession relating to game development of various platform like android, Xbox etc. His job needs some specialized technical service which he wanted to outsource to abroad. In this situation what will be the tax implication and do he need to deduct TDS on payment fee for technical service acquire?

My client is individual not a company, and job will be outsourced to individual.

I found DTAA withholding tax rate chart. But can’t understand "No separate provision" meaning for country like Brazil.

Thanking you

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4 Replies

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 30 January 2023

First of all you need to take GST registration, TAN registration for TDS deduction u/s 195 in the given case. For any business related payments by individual, proprietor need to register themselves under TAN for TDS deduction u/s 195. TDS rate shall be ranging from 10.4% to 10.92% depending upon the transaction value per payee in a year (rate changed due to surcharge rate, whereas base rate remain constant i.e. 10%) or the rate prescribed under DTAA whichever is lower. You also need to file TDS return on quarterly basis and issue TDS certificates through TRACES if payee has PAN registered in India. If payee doesn't have PAN registered in India, prepare a manual TDS certificate and share it with payee for WHT credit in their resident country.

In case DTAA is silent on TDS rate on FTS, please check whether any other close nature of transaction to FTS has been covered under respective DTAA and deduct TDS accordingly. Generally, tax office is very aggressive on TDS compliance and hence, any non deduction of TDS just because TDS rate not defined under DTAA shall trigger litigation point and tax office may jump on the same with all provisions. Hence looking at the TDS amount and cost of litigation if tax office issued negative order, it is always advisable to deduct TDS in such case to be on safer note. If it's a bigger order, you can always take CA's advice on applicability of WHT provision.

Regards,

Manoj

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Barun (Accountant) (24 Points)
Replied 30 January 2023

Thank you very much sir for the reply. Do I need to file Form 15CA /15CB also? If yes, do I need to file every time before remittance or quarterly or yearly? Please let me know.

Thank you.

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 31 January 2023

Yes, you need to file Form 15CA and Form 15CB for each of the tranasaction. If aggregate remittance in the year per payee is less than INR 5 lakhs, then you need not to file Form 15CB for that particular remittance.

Regards,

Manoj