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Discussion > Income Tax > TDS >

TDS where no PAN - Sec 195

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Partner


[ Scorecard : 115]
Posted On 16 October 2009 at 09:19 Report Abuse

Friends,

As per Sec 206AA of IT Act, TDS is to be deducted @ 20% where no PAN is furnished by deductee.

 

Does this apply to cases u/s 195, where the foreign entity does not have PAN?

Sec 195 cases are governed by Sec 115A, Sec 90 & DTAA. Sec 90 gives the assessee the option of deducting TDS at rates beneficial to deductee between 115A & DTAA. But the provisions of Sec 206AA seem to contradict Sec 90.

Pls advise.

 

N K Konkar 

 



Total thanks : 1 times

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Sunil
Trader


[ Scorecard : 2066]
Posted On 16 October 2009 at 12:14

In most of the cases the IT Act as well as the DTAA specify a deduction of over 20%. These are mainly on account of royalties and included services etc. On other incomes it is the maximum marginal rate applicable.

Now for certain incomes like dividends or interest there could be lower rates. However, the requirement exists for the payer to have the PAN number at the time of accepting the investment in the first place. A non resident cannot invest in India without the Indian PAN Number. Therefore it will already be there on record and lower rate of deduction can be used.

Since most of the time TDS is 20% under section 195, it does not really matter whether there is a PAN number or not. It is better you check up thoroughly for instances where a DTAA allows lower than 20% for Royalties and Included Services etc.

If there is no PAN, then you will have to deduct at 20% even if the DTAA speifies a lower rate. Same as a senior citizen Form 15H not being valid without a PAN.

 



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Sunil
Trader


[ Scorecard : 2066]
Posted On 16 October 2009 at 12:19

However, please note that if in case there is no requirement of TDS u/s 195 on account of income not being deemed to accrue in India, for example payment of commission to non resident agent for expots by the exporter., PAN will not be required even for the non deduction of tax. PAN under section 195 would be a requirement only if the income is deemed to accrue in India.




obeid
learner


[ Scorecard : 176]
Posted On 16 October 2009 at 20:12

Hi

What is the TDS u/s 194C if there is no PAN?




Sunil
Trader


[ Scorecard : 2066]
Posted On 16 October 2009 at 21:30

For all cases 194C, 194H, 194 J, 194A etc. it is 20% without PAN.




VIMAL
ASSISTANT MANAGER FINANCE


[ Scorecard : 57]
Posted On 18 November 2009 at 08:29

it is 20%




Sunil
Trader


[ Scorecard : 2066]
Posted On 18 November 2009 at 09:07

Section 90 is supposed to overide all provisions of Income Tax Act 1961.

Section 206 AA is over riding Section 195.

Section 195 is governed by Section 90 to the extent beneficial to assessee.

Section 90 is supposed to over ride Section 206AA too.

We are going a full circle. It is better to overlook DTAA and deduct 20%. As per the DTAA the payee will get relief in his country. Why take a risk.

The Section 90 reads

Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.

Say rates in Force for deduction against Tech Fees is 10%. On account of No PAN Section 206AA enforces a Rate of 20%.

in the DTAA the rate is 15%. Obviously one would deduct at 10% being more beneficial. But on account of no PAN if the rate becomes 20%, Can one allow the DTAA to prevail at 15%? A clarification ought to be issued for cases where DTAA allows lower rate than 20%.




GPK - Dubai
Practicing Chartered Accountant


[ Scorecard : 1304]
Posted On 18 November 2009 at 12:03

Dear Mr. Nandkumar,

 
Please note the following opinion is only valid for Deduction of Tax at Source and it nowhere affect the actual tax liability of a Non resident.
 
Section 195 read as
195. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries”) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :
 
Interpretation
For Deduction of Tax u/s. 195 rate of tax shall be rates in force.
 
Section 2(37A) defines rate in force
(37A)    “rate or rates in force” or “rates in force”, in relation to an assessment year or financial year, means—
(iii)       for the purposes of deduction of tax under section 195, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in an agreement entered into by the Central Government under section 90, or an agreement notified by the Central Government under section 90A, whichever is applicable by virtue of the provisions of section 90, or section 90A, as the case may be
 
Interpretation
For Deduction of Tax u/s. 195 rate of tax shall be rates in force i.e. rate prescribed under relevant Finance Act or rates prescribed under relevant DTAA.
 
Section 90(2) provides for overriding effect of provision of DTAA over Income Tax Act.
(2) Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.
 
Interpretation
For Deduction of Tax u/s. 195 rate of tax shall be rates in force i.e. rate prescribed under relevant Finance Act or rates prescribed under relevant DTAA, whichever is beneficial to assessee.
Example:

Particulars
As per
Finance Act
Indo-UAE DTAA
Interest from NRO Fixed Deposit earned by resident of UAE
30%
12.5%
Rate of TDS u/s. 195 r.w. section 90(2)
12.5%

 
 
Section 69 of Finance No. 2 Act, 2009 inserted new section 206AA in Income Tax Act w.e.f. 1st day of April, 2010, namely:—
 
206AA. (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 his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:—
           (i) at the rate specified in the relevant provision of this Act; or
         (ii) at the rate or rates in force; or
        (iii) at the rate of twenty per cent.
 
Interpretation
For Deduction of Tax u/s. 195 rate of tax shall be rates in force i.e. rate prescribed under relevant Finance Act or rates prescribed under relevant DTAA, whichever is beneficial to assessee. However, after insertion of Section 206AA, the rate of TDS under section 195 shall be higher of rate in force or twenty per cent (20%) i.e. 20%.
Example:

Particulars
As per
 
a. Section 206AA
b. Finance Act
c. Indo-UAE DTAA
 
A. Rate in Force for Interest from NRO FD earned by individual resident of UAE not having PAN.
N.A.
30%
12.5%
 
Rate in force (rate of TDS u/s. 195 r.w. section 90(2)) on or before 31st March 2010.
Lower of above “b” or “c” i.e. 12.5%
 
Particulars
d. As per 206AA (1) (iii)
e. Rate in Force
 
B. Rate of TDS on or after 1st April 2010 for “A”
20%
12.5%
 
Rate of TDS u/s. 195 r.w. section 206AA on or after 1st April, 2010.
Higher of “d” or “e” i.e. 20%

 
In my opinion, based on above explanation, rate for deduction of Tax at source u/s. 195 for Non resident who is not having PAN, on or after 1st April, 2010 shall be 20% and shall be increased by additional Surcharge.
 
It is to be noted that, rate of 20% is only applicable for TDS purpose and Non residents can claim benefit of DTAA and its actual tax liability shall be as per rates prescribed under DTAA (12.5%). To claim refund of excess TDS he can file Return of Income for which he is required to have PAN.

 

Thanks and Regards

Juzer



Total thanks : 2 times



RITESH KOTHARI
B.COM, ACA, DISA(ICAI)


[ Scorecard : 776]
Posted On 18 November 2009 at 12:18

MR. SUNIL,

NOW THE EXEMPTION TO NON RESIDENT AGENTS OF EXPORTERS IS WITHDRAWN w.e.f. 22-10-2009 THROUGH CIRCULAR NO. 7/2009 BY WITHDAWING THE EARLIER CIRCULAR NO. 786 DTD.7-2-2000.




Sunil
Trader


[ Scorecard : 2066]
Posted On 18 November 2009 at 13:43

Riteshji,

 

Withdrawal of circular is not withdrawing Explanation 1 of Section 9 or Article 5 & 7 of DTAAs as far as chargeability of tax on business income is concerned. Article 7 of DTAAs state that Business Income of a Person Resident in a contracting state can be taxed only in that contracting state. Business Income may be taxed in the other contracting state if the person has a PE in the other contracting state and only to the extent of the income accrued to the PE. This explanation to Section 9 is effect from 1/4/2004 and that is well after Circular 786.

 

Article 4 of DTAA as well as our Section 9 have practically the same definition for what constitutes a PE.

 

If an exporter appoints an independent agent who acts in course of his own business abroad and his function is bringing buyer and seller together and sale is made on principal to principal basis, no income will accrue in India if agent receives the commission in his country and he does not have a PE in India. There are three types of PEs. Branch Office PE (BOPE), Project Office PE and Dependent Agent PE (DAPE). The DAPE is a fictitious creation and the others are Real PEs. However there is no concept in any DTAA or IT Act for the Principal appointing the Agent to be a PE of the agent.

 

It is important to study the definition of Business Connection. An Agent can be a business connection for purpose of deemed PE but a Principal cannot be the PE of an agent to deem the Principal as PE and saying that the remittance is taxable in India. AOs were disallowing the expenses by contending that Principals are the PE of the Agent and the income is therefore accrued in india for NR Agent.

 

Many exporters had made an apparent error in not deducting TDS where the agents fees included technical, managerial and consultancy fees. They were reimbursing office, travel and phone expenses also to agents and therefore AOs were interpreting these as managerial service.

 

The agent has to act purely as an independent agent. In this manner, his income will not be deemed to arise in India if he has no PE in India and he will not be deemed to be the DAPE of the Indian Exporter abroad.

 

Now rather than a circular that binds the department, you will have to rely fully on pure interpretation of the Act or DTAA on a case by case basis as per your agreement. There never was any exemption to the agent. If he has a PE of any type in India he has to be taxed. Moreover, if he is offering Technical, Managerial or Consultancy Services then irrespective of whether he has a PE or not, you have to deduct TDS. AOs usually call for agreements and determine whether the nature of service is a Technical Service. If it is technical Service as per rates in force you have to deduct 30% for non companies (in case other than individual, surcharge will have to be added). For Foreign Companies you have to deduct 40% + 2.5% surcharge. If the agreement is after 1/6/2005 and approved or deemed approved by the Central Government, then the TDS is 10% whether company or non company payee. there are certain conditions in which the agreement is deemed to be approved.

 

If there is no income accruing in India, Section 195 does not apply. Therefore there may not be requirement of PAN as it is not a 'nil' rate of TDS. It is No TDS.

 

Juzer, how would you interpret the provisions of DTAA and IT Act for an independent agent operating in UAE for an exporter from India.



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