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funds transfer

saravanan (proprietor) (71 Points)

03 November 2009

We are tour operator, we are giving a payment to NRI Company for tour package amount:

My question is:

1. Payment made to NRI company whether liabile to tds or not?

2. I want know , which amount limitation of Funds transfer directly to NRI Company in calender year?

3. We are getting in any approval from RBI?

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Sunil (Trader) (2611 Points)
Replied 03 November 2009

It depends on what you are paying to the tour operator for. If it is a technical or managerial service you will deduct 20% of the gross amount per section 9 irrespective of whether the foreigner has branch in India or not. If Article 14 of DTAA specifies a lower rate, then you can give that benefit but only provided deductee has a PAN number as without PAN the TDS has to be 20%.

If the amount you are paying to the foreigner is a business income of the payee, there is no TDS if the payee has no Permanent Establishment in India and even as per Article 7 of most DTAAs business income can be taxed only in the country of residence if there is no PE in the source country. However, if there is a PE as defined in Section 9 or Article 5 of DTAA (whichever you are taking cognizance of), only that portion of the income will be taxable that is deemed to accrue in India. You will have to make the computation as per Section 9 or Article 5 & 7 of DTAA and under the head other sums you will have to deduct tax as follows:-

Highest Marginal rates for individual in case of payment to an individual (30%)

Rate for FOREIGN Companies in case payee if a Foreign Company (Firms and other business organisations).

This will depend on what agreement you have signed with your payee.

In all cases your payee will get relief for Indian Income Tax Paid againt his income tax on the same income abroad. For the business income where you deduct foreigner's income at rate for companies or highest marginal rate for individuals the payee can claim relief (not amounting to refund) in his country. However, payee can also apply for PAN, file return and apply for refund in case of an excess deduction by you in Indian Income Tax. If any amount is refunded to him by India, his amount of relief will be reduced to that extent in his country.

Not as simple as it sounds.