This is reagarding whether I am suppose to deduct TDS in following case I (as a Pvt. Shipping Company as per Indian Co Act.) want to make a payment of 10,000 USD to a foreign company (Country A) who shall be giving me license for boarding our crew in a third country (Country B). The company who is providing me licenses does not have any PE in India. Will section 195 get attracted to this transaction. And if yes, will the rate be lower of 10% or rate as per DTA. Kindly advise Regards, A Vaidya
14 May 2010
My view is that section 195 applies which says for deduction of TDS while making payment to any foreign co. However, the rate of TDS will be as per the DTAA. in the absence of any DTAA, the rate of TDS will be 10%.
Also, note down that there is a recent amendment in which even a foreign co. is require to obtain the PAN no. from IT authorities otherwise the rate of TDS will be 20%.
15 May 2010
U/S 195 TDS WILL BE DEDUCTED--- LOWER OF FOLLOWING--- 1) RATE AS PER DTAA 2) NORMAL TAX RATE
QUESTION OF PAN NOT ARISES AS FOREIGN ENTITY WONT HAVE PAN. 20% FOR NO PAN DOES NOT APPLY TO SEC 195. IF NO DTAA & NO PAN TDS TO BE DEDUCTED FROM FOREIGN COMPANY @ TAX RATE APPLICABLE TO FOREIGN CO AND NOT AT THE RATE OF 20%.
15 May 2010
Seems Rahul Sir's answer is correct. Why because this 20 % issue is covered in section 206AA and 206AA is applicable to those cases falling in Chapter XV11B which includes section 195.
15 May 2010
Agree with Sanjay Gupta As according to s. 195 Rates applicable as rate specified in finance Act i.e. rate of s. 195 or rates as per the DTAA. No question of quoting of Pan arises over here.
15 May 2010
Dear All, For PAN issue, i need to say that this amendment has recently become affected and now every foreign entity receiving any payment from India, need to obtain the PAN, else the TDS will be deducted on all payment made by a an Indian Entity to Foreign Entity at the rate of 20%.
I applied it practically, recently since my Co. is a Foreign co. and is receiving monthly payments for Indian Co. Regards
15 May 2010
BUT RAHUL JI IF THIS IS THE SITUATION THEN NO FOREIGN CO (NOT HAVING DTAA) WILL APPLY FOR PAN. SINCE IN ABSENCE OF PAN THE TDS WILL BE DEDUCTED @ 20%. INSTEAD OF 40% (+SC +CESS AS APPLICABLE) I.E. NORMAL TAX RATE IN ABSENCE OF DTAA.
15 May 2010
Yes MR. Sanjay. You may be right. I have not checked the full applicability of Provisions for companies from different countries. But if it so, then we need to check the applicability for them.....Yes you may be right.
What happened in my Case is, that My Co. is in Switzerland and as per DTAA between India and swiss, the tax is NIL. And due to change in the provisions, the tax department receives mail from the tax departmenst of various countries who are dealing with Indian Companies. So now our Foreign Legal Entity are applying for PAN to IT department in India.
17 May 2010
Dear all experts, an interesting discussion. I would like to add that The Provisions of section 206AA which has brought this change in the IT Act relating to PAN starts with a non obstinate clause as following -
“Nothwithstanding anything contained in any other provision of this Act ………..,”
This mean the provision of section 206AA override all the provisions of the income tax Act 1961 including section 90 which provides that in case of a non resident the tax rates as per DTAA or IT Act which are more beneficial shall apply is also overridden. This in your query tax rate @ 20% shall apply if PAN is not available. Where as the question is that all foreign companies will not apply for PAN and will try to pay withholding tax @ 20% even where the rate of tax is higher. The Draftsman have tank enough care of this aspect also as the section provides that in such situations TDS @ 20 % or applicable rate as per IT Act, would apply.
17 May 2010
Thanks to all Experts members for the discussion. Please find below the extract of the Budget 2010. As per this, the higher rate is applicable. Also I posted this Q in Forum also for the point view of other esteemend members. You can get more opinions from there.Regards
Following is the Amendment recently made in the union Budget 2010.
"In order to strengthen the PAN mechanism, it is proposed to make amendments in the Income Tax Act to provide that any person whose receipts are subject to deduction of tax at source i.e., the deductee, shall mandatorily furnish his PAN to the deductor failing which the deductor shall deduct tax at source at higher of the following rates:
(i) the rate prescribed in the Act;
(ii) at the rate in force i.e., the rate mentioned in the Finance Act; or
(iii) at the rate of 20 percent
The above provisions will also apply in cases where the taxpayer files a declaration in form 15G or 15H (u/s 197A) but does not provide his PAN. Further, no certificate under section 197 will be granted by the Assessing Officer unless the application contains the PAN of the applicant."
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