24 June 2010
EXPORTERS FROM INDIA PAY AGENCY COMMISSION TO FOREIGN AGENTS. THESE AGENTS HAVE RENDERED THEIR SERVICES IN THEIR OWN COUNTRY TO THE EXPORTERS FROM INDIA
MY QUESTION ARE:-
1) HAS THE EXPORTER HAS TO DEDUCT T.D.S ON THE FOREIGN AGENCY COMMISSION?
2) HOW WILL THE FOREIGN AGENT WILL CLAIM BACK THE T.D.S DEDUCTION IN INDIA.
24 June 2010
According to me TDS shall not be applicable. As services are rendered outside India so income is accrued outside India and payment is also made outside India so income is also received outside India. As the income of non resident is not taxable neither u/s 7 nor u/s 9. Hence TDS will not be applicable.
12 August 2010
Section 195 of the Act casts an obligation on a resident tax payer making payment to a non resident in respect of an income taxable in India to withhold tax at the rates applicable. The tax is not required to be deducted from the payments made outside India to a NR if the income of NR is not taxable in India. The mechanism is same as for TDS on the resident payee. as per section 9 the income of a resident by way of commission for procuring the sales order is not treated to deemed to accrue and arise in India, the income will not be taxable in India. In case if in your case the agency commission is for procuring sales order , then no TDS is required to be deducted. CBDT has also issues a circular on this in the year 2005. The text of the same is reproduced here under for your ready reference.
Non-resident agent operating outside the country - As clarified earlier in Circular No. 23, dated 23-7-1969 (see under section 5), where the non-resident agent operates outside the country, no part of his income arises in India, and since the payment is usually remitted directly abroad, it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore, held to be not taxable in India. This clarification still prevails, in view of the fact that the relevant sections [section 5(2) and section 9] have not undergone any change in this regard. No tax is therefore deductible under section 195 from export commission and other related charges payable to such a non-resident for services rendered outside India.—Circular : No. 786, dated 7-2-2000.
However this circular has been withdrawn during the FY 2009-10, still one can claim that the TDS is not applicable under section 195 on Sales commission as the income is not accruing and arising to non resident in India as per section 9 . Hope, some clarity is achieved on this issue through this reply.
CAclubindia
