Bangladesh withholding tax

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

31 October 2012 Hi,

We have availed some professional services from an company in Bangladesh. Since the company does not have PAN number, we deducted 20.6% as taxes. However, the company says that this deduction is incorrect. his email is reproduced as below:

"How come you are withholding 20.6 % as income tax. Why it should be ? Because, in Bangladesh ,the banks automatically are deducting 25 % from the remitted money as 15 % as Income tax and 10 % as service tax (consultancy) from us and they forward the certificate to us and the concerned tax zone.

So thereby, you cannot deduct income tax from our billed amount. Please find the copy of our company tax certificate, you can check online about the payment and deduction of taxes by bank in Bangladesh.(for which we are responsible) . You may require to deposit the copy of our tax certificate to avoid the same.

As contractor of xxx India(names hidden), yyyy India, zzz India, we never paid this sort of tax at source. It is supposed to pay this tax for the government of India. We are working for them for last 08 years."

Please clarify if our stand of deducting TDS was incorrect under DTAA. If so, please suggest the reason for the same.

Querist : Anonymous

Querist : Anonymous (Querist)

21 November 2012 Request if Tax experts could help me in this regards

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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18 July 2024 Based on the information provided and assuming you are dealing with payments for professional services under a Double Taxation Avoidance Agreement (DTAA) between India and Bangladesh, here's a clarification regarding the deduction of TDS (Tax Deducted at Source):

### Understanding the Situation:

1. **DTAA and Taxation of Professional Services:**
- Under the DTAA between India and Bangladesh, the taxation of professional services provided by a Bangladeshi company to an Indian company may be governed.
- Typically, DTAA provisions specify the rates of withholding tax (TDS) on income earned by residents of one country (Bangladesh in this case) from the other country (India).

2. **TDS Rates:**
- If the services provided fall under the category of "fees for technical services" or similar, the applicable TDS rate under the DTAA could be different from the domestic rate in India.
- For example, the standard TDS rate in India for payments to non-residents for professional services is 10% under Section 195 of the Income Tax Act, unless a lower rate is prescribed under the DTAA.

3. **Bangladeshi Tax Deductions:**
- The company from Bangladesh mentioned that their local banks deduct 25% (15% as income tax and 10% as service tax) from remittances they receive. This is a local tax deduction in Bangladesh, not applicable under Indian tax laws.

### Key Points for Clarification:

- **DTAA Application:** Verify the specific provisions of the DTAA between India and Bangladesh regarding the taxation of professional services. This will outline whether the TDS rate applicable under the DTAA is different from the standard domestic rate in India.

- **Certification of Tax Deduction:** The Bangladeshi company should provide you with their tax certificate or a relevant document certifying that taxes have been deducted in Bangladesh. This can help in avoiding double taxation and ensuring compliance with the DTAA.

- **Correcting TDS Deduction:** If it is confirmed that the TDS rate applied was incorrect under the DTAA (and assuming the Bangladeshi company qualifies for a lower rate), you may need to rectify the TDS deduction. This can involve adjusting the payment and possibly refunding any excess TDS deducted.

### Steps Forward:

- **Review DTAA:** Check the specific provisions of the DTAA to determine the correct TDS rate applicable to payments for professional services from Bangladesh to India.

- **Consult Tax Advisor:** If uncertain, consult a tax advisor or accountant specializing in international taxation to ensure compliance with both Indian tax laws and the DTAA.

- **Communication:** Clearly communicate with the Bangladeshi company, share the relevant DTAA provisions, and request necessary documentation to rectify any incorrect TDS deduction.

### Conclusion:

The deduction of TDS at 20.6% may indeed be incorrect if the applicable rate under the DTAA between India and Bangladesh is lower. Verify the DTAA provisions, review the documentation provided by the Bangladeshi company, and take appropriate steps to rectify the TDS deduction if necessary. This approach ensures compliance with international tax laws and avoids unnecessary withholding of taxes.

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