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TDS on payment of Professional Fee to Foreign Firm

PRAVEEN KUMAR (MBA (Finance) B.Com.(P)) (3443 Points)

11 September 2009

Hi,

Please tell me whethere we have to deduct TDS on payment to a Foreign Law Firm (situated outside india) money will go from India to abroad.

Please tell me in detail with some proof or something to show to my management.

Thanks & Best Regards

Praveen

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2 Replies

Sunil (Trader) (2611 Points)
Replied 12 September 2009

Per Income Tax Act, you have to deduct 20% + cess on professional, technical or managerial fees whether the beneficiary has a PE in India or not.

Now you check the DTAA India has with recepient country. Most of them provide for payment maybe at a different rate for fees on these professional services. You have to deduct whatever is most beneficial to you. In some DTAAs it is specified that the source country should not deduct for the all inclusive services like legal services and accountant services etc. Then you do not need to deduct. All the agreements with various countries are available on the incometaxindia.gov.in under international taxation. Use what is most beneficial to you.

The responsibility has been fixed on your CA to certify the quantum. He has to check your invoices and agreement with recepient and then determine the tax rate you have to use to deduct the tax or if you are bearing the tax then the deduction on grossed up basis. If you are claiming the deduction at lower rate due to DTAA or any other notification of CBDT he has to reference it in the appropriate column. Let him also cross check the DTAA and mention if DTAA rates are applicable.

Once your CA gives you this certificate in form 15CB you have to access NSDL and generate online 15CA with your PAN and TAN number. This is basically giving details of remittance as per form 15CB as well as an undertaking from you that you will bear tax + interest and penalty if you have not deducted or short deducted. The info goes to your ITO as well as the TDS Officer. After submission you have to print out the acknowledgement and sign with blue ink pen and rubber stamp.

Submit to your Bank the Form 15CB from CA, Form 15CA duly signed, Form A2 of RBI and application for remittance.

Please remember that if service tax is applicable on the particular service and you use it for your business, then you will have to register with service tax as a service recepient and pay the service tax at applicable rate. You will not be able to use this service tax as an input.

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Mahesh (Chartered Accountant) (53 Points)
Replied 07 May 2010

Hi Sunil,

Thanks for the valuable info. But can you please provide the relevant clause & section under which the 20% has been arrived at.

Rgds,

Mahesh

Originally posted by : Sunil

Per Income Tax Act, you have to deduct 20% + cess on professional, technical or managerial fees whether the beneficiary has a PE in India or not.
Now you check the DTAA India has with recepient country. Most of them provide for payment maybe at a different rate for fees on these professional services. You have to deduct whatever is most beneficial to you. In some DTAAs it is specified that the source country should not deduct for the all inclusive services like legal services and accountant services etc. Then you do not need to deduct. All the agreements with various countries are available on the incometaxindia.gov.in under international taxation. Use what is most beneficial to you.
The responsibility has been fixed on your CA to certify the quantum. He has to check your invoices and agreement with recepient and then determine the tax rate you have to use to deduct the tax or if you are bearing the tax then the deduction on grossed up basis. If you are claiming the deduction at lower rate due to DTAA or any other notification of CBDT he has to reference it in the appropriate column. Let him also cross check the DTAA and mention if DTAA rates are applicable.
Once your CA gives you this certificate in form 15CB you have to access NSDL and generate online 15CA with your PAN and TAN number. This is basically giving details of remittance as per form 15CB as well as an undertaking from you that you will bear tax + interest and penalty if you have not deducted or short deducted. The info goes to your ITO as well as the TDS Officer. After submission you have to print out the acknowledgement and sign with blue ink pen and rubber stamp.
Submit to your Bank the Form 15CB from CA, Form 15CA duly signed, Form A2 of RBI and application for remittance.
Please remember that if service tax is applicable on the particular service and you use it for your business, then you will have to register with service tax as a service recepient and pay the service tax at applicable rate. You will not be able to use this service tax as an input.