Regarding withholding tax

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Pandharinath (Querist)
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05 October 2015 Dear all,

We have received technical sevices from Microsoft and it situated in US but it has PANCARD issued by indian income tax u/s 139A.

My problem is that,which tax is come in to picture it means TDS or withholding tax.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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05 October 2015 It is withholding tax u/s 195.......

Pandharinath

Pandharinath (Querist)
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05 October 2015 Dear Sir,

We are paying invoice amount to middle person in RS.and it is indian on behalf microsoft,

As per Microsoft they want to deduct tax on the name of microsoft.

He has a pan as per Indian income tax.

What is tax rate is applicable on that

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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20 July 2025 Great question! Let me clarify the withholding tax and TDS situation in your scenario.

Situation Recap:
You received technical services from Microsoft (US).
Microsoft has a PAN card issued under Indian Income Tax Act (u/s 139A).
You are paying the invoice amount in INR to an Indian middle person, who is paying Microsoft on your behalf.
Microsoft wants tax to be deducted in their name.
What tax applies here?
1. Withholding Tax under Section 195 of the Indian Income Tax Act:

Payments made to a non-resident (like Microsoft US) for technical services are subject to TDS (Tax Deducted at Source) under Section 195.
Even if the payment is routed through an Indian middleman, the ultimate payment to the non-resident triggers withholding.
Section 195 requires deduction of tax on payments to non-residents for services or royalties.
2. PAN and Its Effect:

If Microsoft (the non-resident) has a valid Indian PAN, tax rates applicable under the Income Tax Act (including any benefits under DTAA if applicable) apply.
The PAN ensures proper tax credit and prevents higher withholding rates.
Who deducts the tax and at what rate?
Since you are paying the Indian middle person in INR, and the middle person is paying Microsoft (non-resident), you may have withholding obligations on your payment to the middle person if the middle person is acting as a representative.
However, if the middle person is just an agent and the payment effectively belongs to Microsoft, the tax should be deducted in the name of Microsoft (the non-resident) on the gross amount paid or payable to them.
Tax Rate Applicable:
The rate depends on the nature of the service and the Double Taxation Avoidance Agreement (DTAA) between India and the US.
Typically, for Technical Services, the TDS rate can be 10% under DTAA, otherwise, the normal domestic rate could be higher (like 15% or more).
Since Microsoft has PAN, the lower DTAA rate is likely applicable.

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