19 November 2009
I do not agree with the other experts on this issue. 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 income of the NR is taxable in India if it satisfies certain conditions.
As per section 5 the income of NR should have been either be received or deemed to be received in India or should be accrue or deemed to accrue in India for such income to be taxable in India.
As per section 9 the income of a resident by way of fees for service rendered would be treated as technical fees and will be deemed to accrue and arise in India, the income will be taxable in India with in the meaning of deeming provision under section 9 of the Act as the explanation 2 to section 9 (1) (vii)
However As per section 90 of IT Act one can take the benefit of provision of Double taxation Avoidance Agreements ( DTAA) Currently India has DTAA’s with more then 75 Countries.
Since in your query it is not clear that what kind of services are being provided and the country of residence of non resident company also not clearly mentioned, in the absence of such information it is difficult to give any concrete advice, however from the language body of the query it seems that apparently TDS is applicable under section 195 @ 10.56%.
Apart from this on the companies engaged in the business of freight forwarding provisions of section 172 apply. As per the provisiosn of section 172 of IT Act, any resident making payment to a non resident, on account of freight of goods and live stock from any Indian Port, need not deduct TDS from such payment if the freighter / owner of the ship ha made arrangement of payment of Indian taxes on such freight income earned from Indian Operations. The Taxation under section 172 is on presumptive basis. Indian tax authorities issue a certificate of non deduction tax at source to such companies on vessel to vessel basis. A payer of the freight can demand a copy of such certificate from the the operator of the ship to ensure that provisions of section 172 are applicable to such payee.
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