How to determine applicable TDS Rate on making Foreign Payment:
TDS on foreign payments depends on two conditions. First, whether deductee provides a valid TRC or not? Second, whether deductee holds a valid PAN in India or not?
Below is the matrix showing applicable TDS rates depending on the availability of TRC & PAN.
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TDS RATE ON FOREIGN PAYMENTS |
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CASES |
Whether TRC is available? |
Whether PAN is available? |
Treatment |
Possible Challenges |
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CASE - A |
Yes |
Yes |
Grossing Up should be done @ DTAA Rate.
|
NA |
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CASE - B |
No |
No |
Grossing Up should be done @ applicable IT Act Rate.
|
Foreign Income Tax Authority may decline to give TDS credit in excess of rate prescribed in DTAA. |
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CASE - C |
No |
Yes |
Grossing Up should be done @ applicable IT Act Rate.
|
Foreign Income Tax Authority may decline to give TDS credit in excess of rate prescribed in DTAA. |
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|
CASE - D |
Yes |
No |
Grossing Up should be done @ DTAA Rate (Bosch Ltd. ITAT Bangalore).
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Foreign Income Tax Authority may decline to give TDS credit in excess of rate prescribed in DTAA. |
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Note 1) |
IT Act Rates (as mentioned above) has to be increased by Surcharge & Education Cess. |
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DTAA rates need not to be increased by Surcharge & Education Cess. |
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Requirement of TRC for claiming Relief under DTAA |
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1) TRC became mandatory w.e.f. 01/04/12 |
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2) Format of TRC notified w.e.f. 17/09/12 |
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3) If TRC is not in specified format then a declaration in Form 10F is also mandatory along with the required documents w.e.f. 01/08/13. |
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