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TDS on Service Fee to Scheduled Bank

C V RATNAM DHAVEJI (CHARTERED ACCOUNTANT) (56 Points)

06 September 2008

A public limited company avails services of a Foreign Bank having branch in India for obtaining buyers credit from overseas. The Indian branch of the Foreign Bank arraning credit charges a service fee based on the quantum and tenure of loan and recieves in India in INR. The loan is in foreign currency and is repaybale in foreign currency to the foreign bank. Whether TDS is to be deducted on the service fee charged by the Indian Branch of the Foregin Bank. If so, under what section and at what rate?

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7 Replies

Ramakrishna (Financial Executive) (438 Points)
Replied 14 September 2008

Dear Sir!!

You have indeed posted a very interesting question!

As per the explanation brought into force by the Finance Act, 2007 below Section 9 of the Income Tax Act, 1961, any income by way of interest, royalty or fees for technical services would be deemed to accrue or arise in India, irespective of the fact that whether there is any territorial nexus for such income with India or whether the services are rendered and utilised in a business in India.

The above amendment has nullify a few contrary court judgements. The source rule applicable for income deemed to accrue or arise in India and provided in Section 9(v), (vi) and (vii) are suffixed by the above explanation.

Thus in the instant case, the income received by the Indian branch of the foregn bank, is in no doubt, an indian income liable for tax in India.

As far as TDS is concerned, the services availed by the client being of a professional nature involving proper financial appraisal, verifying the credit worthiness, asset particulars, securities provided, etc, it qualifies to be a professional service liable for TDS under Section 194J of the Income Tax Act, 1961.

It is hoped that the opinion provided by me, is correct.

Do post your comments!

Good bye!! Cheers!!

CA V. Mohanakrishnan (Chartered Accountant) (401 Points)
Replied 27 September 2008

This is absolutely right as the permenant establishment of the bank exists in India and the service charges are liable for tax deduction

C V RATNAM DHAVEJI (CHARTERED ACCOUNTANT) (56 Points)
Replied 15 January 2009

Thanks for your replies and I believe you are correct, Mr.RamaKrishna

I have another query which is just reverse of my earlier one.

The company cited, avails buyer credit from a foreign branch of an Indian Bank in foreign currency and repays along with interest in forex.

In view of the provisions of sec.194A, any interest paid to a banking company to which the BR Act applies, TDS is not applicable.

Whether my above statement can be verified and corrected if necessary with justification.

pawan (service) (27 Points)
Replied 23 February 2009

i want some suggession that if a indian pvt ltd. com pay appraisal fee to indian bank in india .

whether the company is liable to deducted the tax if yes then under which section 194A or 194J

CA. pawan khanna

mehul patel (proprietor) (26 Points)
Replied 18 July 2009

Originally posted by :Ramakrishna
"	Dear Sir!! You have indeed posted a very interesting question! As per the explanation brought into force by the Finance Act, 2007 below Section 9 of the Income Tax Act, 1961, any income by way of interest, royalty or fees for technical services would be deemed to accrue or arise in India, irespective of the fact that whether there is any territorial nexus for such income with India or whether the services are rendered and utilised in a business in India. The above amendment has nullify a few contrary court judgements. The source rule applicable for income deemed to accrue or arise in India and provided in Section 9(v), (vi) and (vii) are suffixed by the above explanation. Thus in the instant case, the income received by the Indian branch of the foregn bank, is in no doubt, an indian income liable for tax in India. As far as TDS is concerned, the services availed by the client being of a professional nature involving proper financial appraisal, verifying the credit worthiness, asset particulars, securities provided, etc, it qualifies to be a professional service liable for TDS under Section 194J of the Income Tax Act, 1961. It is hoped that the opinion provided by me, is correct. Do post your comments! Good bye!! Cheers!!	"