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Tds on payment of testing charges to overseas

abhay pandey (Accountant) (36 Points)

23 August 2014

Dear All

I want your view on below matter.

We are making payment of testing charges to our overseas vendor of Germany.

As per latest amendment in section 195 fee for technical service where the agreement is made on or after April 1, 1976, tds rate @ 25.75% will be applicable.

As per DTAA between India & Germany TDS will be deducted @ 10%

Please clarify me that at which rate TDS should be deducted 10% or 25.75% as we have not any agreement with the party.

The agreement clause mention in section 195 related to agreement between two parties or for DTAA.

In my view its for agreement between parties.

Kindly provide your views also.

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5 Replies

CA Saloni (Manager-Accounts & GST Consultant) (5124 Points)
Replied 23 August 2014

You should enter into an agreement with the party..........

Take the rate as 10% acc to DTAA

CA SUKSHAM ARORA (CA) (569 Points)
Replied 23 August 2014

i agree with saloni

Karthik (Employed) (56 Points)
Replied 23 August 2014

Before making payment to an overseas party, it is imperative that the TRC or Form 10F must be obtained from the deductee. Failing which the treaty benefit shall not be applicable.

Further, PAN is also a criteria for adopting the lower TDS rate. Else S.206AA would apply.

Hope you have taken care of these procedures as well.

Once all these are complied, treaty rate as per DTAA can be adopted.

Thanks,

abhay pandey (Accountant) (36 Points)
Replied 23 August 2014

Thanks

There is not requirement of any agreement with party.

Saloni , SUKSHAM & KARTHIK

My main question is that "agreement" word used in section 195 realted to DTAA agreement or agreement between parties. I need clarification about this, any case or circular related with this

h. fees for technical services [see Note 7] –
• where the agreement is made after February 29, 1964 but before April 1, 1976	30.9	33.99	51.5	52.53	54.075
• where the agreement is made on or after April 1, 1976

Dear Karthik

Thanks for detail reply.

S.206AA will be applicable to non-resident also becuase its not possible to tell the party to take PAN in India. The treaty will not override S.206AA

Please check & reply.

Karthik (Employed) (56 Points)
Replied 23 August 2014

Please read the section 206AA and respond accordingly. The agreement referred to in is DTAA. 206AA starts as

"(1) Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish...."

whereas there s nothing of that sort in 195. Hence the response remains unchanged. The compliance of other provisions are must.