vijaykumar lakhara (MANAGER ACCOUNTS & FINANCE) (70 Points)
08 December 2009I have to make a payment for professional services in foreign currency (Euro).
the payee doesnot have any permanent establishment.
wthether this payment is liable to TDS??
whether DTAA applicable???
what is the rate of TDS if liable to deduct services??
Prabeer
(B. COM (H) CA & CS Final)
(5484 Points)
Replied 08 December 2009
Dear Mr. vijaykumar lakhara, you need to deduct TDS U/s 195 of I.T. Act @ 10%. PAN is not required and you need to file Form 27Q Return as TDS Return.
Sunil
(Trader)
(2611 Points)
Replied 08 December 2009
You need to deduct TDS U/s 195. The TDS is irrecpective of whether there exists a PE or not as per Section 9. As the rate is 30% for individuals and 40% for companies, you do not need a PAN. If it is a Technical Service as defined in Section 9 and it is within the scope of the Industrial Policy then the rate is 10% for both company and non company. To apply 10% Rate you need a PAN otherwise you have to apply 20% rate.
You may refer to the provisions of DTAA between India and the state of which the professional is a Resident. They have provisions for
1) Royalty and Technical Services
2) Independent Personal Services (lawyer, accountant, doctor, engineer).
These are usually handled in Articles 12-16 of the DTAAs and they could do one or more of the following:-
1) They may impose condition of PE to make the amount taxable.
2) They may specify number of days of residence by the individual professional or partner of the firm of professionals in India for making the amount taxable in india.
3) They may specify a maximum rate that can be charged.
You may apply provisions of DTAA if more beneficial to the payee. If by virtue of DTAA amount should not be taxed, then you take certificate in Form 15CB from CA referring to relevant provisions. If the DTAA specifies a lower rate than Income Tax Act and this rate is less than 20%, you apply this rate provided there is PAN otherwise apply 20%.
Even if you deduct TDS if not applicable or wrongly deduct a higher amount professional will get relief against the tax payable by him on the INDIAN INCOME at his country. He will not get refund if this is higher than the tax at his country and neither will the Indian Tax be adjusted against tax on his other income abroad. If on account of wrong higher deduction or wrong deduction he does not get relief in his country he can file returns within timelimit here and claim refund.
Therefore if you wish to to be safe you deduct 30% + cess if individual payee and 40% + 2.5% surcharge + cess if other than individual and help the payee get back refund from our tax department.
CAclubindia
