Regarding withholding tax
This query is : Resolved
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.
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.
05 October 2015
It is withholding tax u/s 195.......
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
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
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.
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.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Tax Liability on Trading Account in Name of Person with Disability (Autism) Operated by Guardian
- Tcs claim for previous financial year
- TDS on Purchase of Goods 194Q
- Dinner party and 194Q
- TDS Applicability on Adobe Subscription u/s 195
- Invertted duty struture
- Order from Department U/s 74
- Clarification Required on GST Rate & HSN Classification – Millet-Based Probiotic Drink
- Health insurance
- I want to Close my LLP
- AMC Contract &GST &Income Tax
- TDS Return filing if only have 15G /15H deductions and no other payments
- IMPORT OF GOODS CREDIT
- 80G deduction eligibility
- GST on Tobacco - as per new notification
- Cant amend a 26QB
- Gst no of supplier cancelled from 2017
- "Please ensure that the Total of the Deductions u/s 54F match the same in Table D in Sch CG"
- Composition Dealer GST Annual Return Filing process
- TDS under section 195.
Trending Online Classes
-
Online GST Course - Master the Fundamentals of GST with Practical Insights
Ruhi Joshirao19 January 2026
CAclubindia
