Remittance outside india

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Querist : Anonymous

Querist : Anonymous (Querist)

21 May 2012 My client wants to import a machinery from Italy. At wat rate tds should be deducted as per IT Act and as per DTAA while making payment?

CA CKP

CA CKP (Expert)
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21 May 2012 TDS is not to be deductible on payment for purchase of machinery...

Querist : Anonymous

Querist : Anonymous (Querist)

21 May 2012 Thank you Sir

Querist : Anonymous

Querist : Anonymous (Querist)

22 May 2012 Sir what if the foreign company is having a permenant establishment in India and such remittance is connected with such permenant establishment? is the remittance liable to tax?

Asha Kanta Sharma online

Asha Kanta Sharma online

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21 July 2025 Great question!

Here’s how it works:

1. Payment for Purchase of Machinery (No PE):
If the foreign company does NOT have a Permanent Establishment (PE) in India, payment for the purchase of machinery is a capital goods purchase.
No TDS is deductible on such payment under Income Tax Act because it is a purchase transaction, not a payment for services or royalties.
So, no tax liability or withholding on your client.
2. If Foreign Company Has a PE in India:
If the foreign company has a PE in India, and the payment relates to that PE (i.e., is connected to business carried on through the PE), then:
The income attributable to the PE is taxable in India as business income.
The payment could be treated as a remittance to the PE, and tax may be applicable.
However, TDS (withholding tax) would be required only if the payment is for services rendered or business profits repatriated.
For mere purchase of machinery (capital asset), no TDS is generally applicable even if the company has a PE, as it’s a capital expenditure, not income or fees.
3. Impact of DTAA:
DTAA provides relief on withholding tax rates mainly on income like royalties, fees for technical services, interest, dividends, etc.
Since purchase of machinery is not income, DTAA rates won’t apply to reduce or increase tax on purchase price.
Summary:
Scenario TDS Applicable? Rate/Remarks
Foreign co. with no PE in India, purchase of machinery No No TDS on purchase of goods
Foreign co. with PE in India, payment connected to PE Possibly Yes Only if payment is for services or repatriation of profits; not on purchase of machinery

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