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Tds on payment to non residents

Jayesh Sarvaiya (Chartered Accountants) (175 Points)

04 January 2016

What will be the rate of TDS if payment made by Indian Company to USA Company for rendering service in USA? (With PAN or Without PAN)

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Ankit Taprania (CA FINAL ) (542 Points)
Replied 04 January 2016

Section 194C will not apply: becasue the payee is not resident

Section 195 will not apply : because the transaction is not taxable in india ( if foreign company in not operating from permanent establishment in india otherwise it will become taxable in india and TDS will be deducted )

NOW WE LOOK INTO DTAA : this diagram will help you for that

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CA CMA CS Ram Pavan Kumar Melam (CA) (6980 Points)
Replied 04 January 2016

Very good reply with excellent flow chart.

Karthik.V.Kulkarni (Chartered Accountant) (594 Points)
Replied 04 January 2016

Hi,

I would like to opine as follows:

Section 195 is applicable irrespective of PE or not, so payments to non resident shall be subject to provisions of section 195 and as per section 195 income tax which is chargeable in India shall be deducted .

The issue here is whether the services rendered by the USA company are taxable in India , so here section 9 comes into play which stipulates income deemed to accrue or arise in India, if the services are in the way of royalty and fees for technical services and it relates to business carried on by the payer in India then it is deemed to accrue or arise in india . If the foreign comapny has pan then it can be assumed that it has a permanent establishment in india and even business income is chargeable to tax in india , other wise income from business connection need not be taxed in India.

As there would be double taxation of the foreign comapnies income as per section 90 releif is given by way of DTAA and the rate which is more benificail to the assessee will be taken into consideration .

And there is a litigative matter where if PAN is not available then whether 20% should be deducted or not and recently tribunal had given verdict that sec 206AA cannot over ride section 90 thus higher deduction of 20% is not applicable.

In short payments to non resident is a vast subject and cannot be clarified in here with only one perspective , it depends on facts and circumstances of the case.

Hope my opinion prooved useful for further discussion you can contact me through following:

Mail : kulkarni.king @ gmail.com

Ph : 8951210698

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CA CMA CS Ram Pavan Kumar Melam (CA) (6980 Points)
Replied 04 January 2016

Mere having PAN by a foreign comapny cannot be assumed of having a permanent establishment in india.

Not entire business income is chargeable to tax in india in case of business connection.

Income from a business connection will be deemed to accrue or arise in India only to the extent of profits attributable to operations in India. Say, if 10% Weightage is given to work in India, then only 10% of the profits would be deemed to accrue or arise in India.

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Karthik.V.Kulkarni (Chartered Accountant) (594 Points)
Replied 05 January 2016

True, it cannot be blindly assumed.

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Gagan Deep Singh (CHARTERED ACCOUNTANT) (1190 Points)
Replied 05 January 2016

Payment made to a non resident for rendering services outside India for the purpose of carrying on business in India will be liable for TDS u/s 195 of the Act or as per relevant DTAA whichever is beneficial.

Since section 90(2) is a specific section and in recent case of Serum Institute Hon'ble ITAT(pune) also held that section 206AA can not override section 90(2). Hence, in my opinion DTAA will override section 206AA(deduction at 20% or such higher rate in case an assessee does not have a PAN).

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Jayesh Sarvaiya (Chartered Accountants) (175 Points)
Replied 05 January 2016

Thank you all for prompt reply.

The service will be provided in USA only for expanding the business their (i.e in USA).

For making payment to them Indian company is deducting TDS @ 10 % (if PAN not available then 20%) and they will issue 15CA/15CB to bank for such remmitence,

CA CMA CS Ram Pavan Kumar Melam (CA) (6980 Points)
Replied 05 January 2016

Form 15CB shall be issued by a practicing CA and Form 15CA shall be e- filed by the deductor at www.incometaxindiaefiling.gov.in

Ramanuj (Accountant.) (834 Points)
Replied 05 January 2016

YES AGREE WITH ABOVE

I DO PRACTICALLY SAME PROCESS. IF PAN NOT PROVIDED TDS DEDUCTED 20/% MADE 15CA & CB

THANKS & REGARDS

RAMANUJ

Ankit Taprania (CA FINAL ) (542 Points)
Replied 05 January 2016

it looks like company is reciving technical consultancy or Legal service outside, which is deemed to accrue or arise in India, whether or not non-resident has place of business in india or has rendered services in India. .

so ya for these TDS SHOULD BE deductable.

1. 10 % when PAN available .

2. 20% when PAN not available + 15CB