TDS on Payment to Non-Resident by Resident Foreign Entity

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This discussion addresses whether a Dubai-based company (XYZ FZE), considered an Indian tax resident due to the Place of Effective Management (POEM) rules, must deduct Tax Deducted at Source (TDS) on payments made to non-residents. As XYZ FZE is treated as an Indian company, Indian Income Tax Act provisions, including Section 195 for TDS, apply. TDS is mandatory if the payment is taxable in India, though Double Taxation Avoidance Agreement (DTAA) benefits, supported by documentation like a Tax Residency Certificate (TRC) and Form 10F, can reduce the liability. If the non-resident supplier objects to TDS, options include grossing up the payment or obtaining a lower/nil withholding tax certificate.

ANKUR PATEL

ANKUR PATEL (Querist)

08 April 2025 Indian Company: ABC PVT LTD (Turnover 1500 Cr. INR)
Dubai Company: XYZ FZE (Turnover 500 Cr. INR) (Fully owned and managed by ABC PVT LTD from India)
As per POEM rule, XYZ FZE has been declared as Indian Resident.

Question:
If XYZ FZE is paying to any NON-RESIDENT, is it required to deduct TDS or is it required to collect form 10F, No PE Certificate and TRC?
Why such question?
XYZ FZE is located in Dubai, Service provider is located in other country (let's say Europe) and but since the XYZ FZE is indian resident as per POEM rule, all income tax act provision will apply to XYZ FZE.
Now, if we deduct the TDS then it will be like, Dubai entity is paying to Europe (assumed) entity in foreign currency after deducting Indian TDS. Will that be accepted by the supplier of service or the Government of service provider?

Kindly provide the justifiable solution to this issue. What is the right treatment to this transaction? Should the TDS be deducted or not?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

12 April 2025 Since XYZ FZE (Dubai) has been declared an Indian tax resident under the Place of Effective Management (POEM) rules, it will be treated as an Indian company for tax purposes. Consequently, all provisions of the Indian Income Tax Act, 1961, including Tax Deducted at Source (TDS) under Section 195, will apply to its payments to non-residents.
TDS must be deducted if the payment is taxable in India.

If the income is not taxable in India, no TDS is required.

DTAA benefits can reduce the TDS burden, but proper documentation (TRC, Form 10F, No PE Certificate) is mandatory.

If the supplier refuses TDS, explore grossing up or obtaining a lower/NIL withholding certificate.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

29 September 2025 Good luck..

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