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Tds on royalty u/s 195

Vipul murarka (Chartered Accountant) (49 Points)

19 June 2013

In recent amendments there is increase in royalty to 25% in income tax act. But the withholding tax in DTAA are same as earlier. My company is paying royalty to US based licensor. Should I deduct tax under DTAA i.e 15% or income tax act i.e 25%. I know whichever is beneficial to an assessee is to be considered. But than i'm not getting the purpose for the amendment of rate under income tax act to 25%. Kindly reply.

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5 Replies

CA Kedar Sakhardande (Proprietor) (942 Points)
Replied 19 June 2013

As far as my knowledge goes

A) you may apply DTAA rate of 15% can be applied if following conditions are satisfied:

1) PAN No of the deductee is availile 2)DTAA exists between the countries 3) Tax Ressidency Certificate can be obtained 4) justifying documents are availible for beneficil interest is availible 5) DTAA rate is less than 25 %

B) In case, PAN No is not availible is tax is to be deducted @ 20 % (pemnalty for no PAN)

C ) In other cases deduct tax @ 25%

in all cases except B , it is compulsory for the assessee to file Income Tax Return.

Regards.

Raju (Meger, Aquisi,Takeover) (Audit Assitant) (56 Points)
Replied 20 June 2013

rate of 15% will be taken for the Tax but if you are asking the reason for why it increases to the 25% than following may be the reason for the changes

1 where the DTAA are not present and country wants to hold the foreign currency as much as they can because its very difficult to recover the money if once it went out side the country

2 if the laws are doc are not followed / deposited by the party's where the DTAA are present

venkat (Cost Accountant) (26 Points)
Replied 06 October 2015

Royalty is recovered by the customer in my bill (civil work contract) and net amount is paid to me. TDs was recovered on the gross value of my bill. Should I deduct TDs on royalty and pay to govt and recover from the customer

Karthik.V.Kulkarni (Chartered Accountant) (594 Points)
Replied 06 October 2015

Hi Vipul,

DTAA is entered into for benifit of the assessee. If the assessee is taxed in both states then the tax burden will be more on the assessee so the DTAA are entered into. 25% is flat rate on which any payemt of royalty and fee for technical services and the like paid to NR is applicable. It is the tax rate and not TDS rate.

So supposing if your income doesnt fall under any articles mentioned in DTAA but is deemed to accrue or arise in India then you have to tax them at 25% irrespective it has DTAA.

So why is because they want to collect tax thats all. They want to collect tax before the income flows out from India.

Regards

Karthik V Kulkarni