Service tax on agency commission in foreign country
This query is : Resolved
09 February 2013
I find the applicability of Service Tax / TDS bit contentious on the following issues for services rendered in foreign country:
1. Agency Commission for Sales Promotion to agent in foreign country against exports.
2. In case of warranty extension (say from 1 year to 3 years) payable to foreign supplier for capital goods / machinery imported from them in to India.
Often, it is an issue that the banks raise to be authenticated by an auditor and it is very contentious to prove the applicability of TDS / Service Tax.
Notwithstanding my personal opinion, please help with the law and its relevant chapter / section about the scope of TDS for the above payments to be made in foreign currency (through Form A-2).
Best Regards -
PP Bhattacharya
1. Agency Commission for Sales Promotion to agent in foreign country against exports.
2. In case of warranty extension (say from 1 year to 3 years) payable to foreign supplier for capital goods / machinery imported from them in to India.
Often, it is an issue that the banks raise to be authenticated by an auditor and it is very contentious to prove the applicability of TDS / Service Tax.
Notwithstanding my personal opinion, please help with the law and its relevant chapter / section about the scope of TDS for the above payments to be made in foreign currency (through Form A-2).
Best Regards -
PP Bhattacharya
09 February 2013
Hello Mr. Bhattacharya,
Advertisement is Taxable Service. If you receive from outside the country than you should have to pay service tax liability by under the rule of reverse calculation and also discharged your TDS Liability @ 20 % under section 195.
Further if you provide the service than it will also taxable .
Advertisement is Taxable Service. If you receive from outside the country than you should have to pay service tax liability by under the rule of reverse calculation and also discharged your TDS Liability @ 20 % under section 195.
Further if you provide the service than it will also taxable .
11 February 2013
Dear Mr. Singh,
Thank you for your reply. We are not talking about advertisement. My query is specific to agency commission to foreign agents of Indian exporters operating outside India.
As far as my knowledge is concerned, they are not liable to tax under Sec 195 for commission paid by Indian exporters.Even the the Hon’ble Supreme Court held that when a non-resident, with no operation of business in India, rendered services outside India to an Indian concern, then provisions of Section 9 of the I.T Act 1961 are not attracted. (CIT v Toshoku Ltd (125 ITR 525, SC).
With the withdrawal of Circulars 23 of 1969 and 786 of 2000 by CBDT Circular No. 7 / 2009 dated 22-10-2009, it is unlikely that Section 9(1)(i), 9(1)(vi) and 9(1)(vii)) specifically can be imposed. Under the circumstances, income of foreign agents from commission payments made by the Indian company is not deemed to accrue or arise in India; hence is not taxable in India under the Indian Income Tax Act, 1961.
The question however is, does the same logic apply for payment in foreign currency to foreign supplier for warranty extension on goods purchased from them??
Different people, including banks seem to have contrasting opinions... and I am looking for clarity
Thank you for your reply. We are not talking about advertisement. My query is specific to agency commission to foreign agents of Indian exporters operating outside India.
As far as my knowledge is concerned, they are not liable to tax under Sec 195 for commission paid by Indian exporters.Even the the Hon’ble Supreme Court held that when a non-resident, with no operation of business in India, rendered services outside India to an Indian concern, then provisions of Section 9 of the I.T Act 1961 are not attracted. (CIT v Toshoku Ltd (125 ITR 525, SC).
With the withdrawal of Circulars 23 of 1969 and 786 of 2000 by CBDT Circular No. 7 / 2009 dated 22-10-2009, it is unlikely that Section 9(1)(i), 9(1)(vi) and 9(1)(vii)) specifically can be imposed. Under the circumstances, income of foreign agents from commission payments made by the Indian company is not deemed to accrue or arise in India; hence is not taxable in India under the Indian Income Tax Act, 1961.
The question however is, does the same logic apply for payment in foreign currency to foreign supplier for warranty extension on goods purchased from them??
Different people, including banks seem to have contrasting opinions... and I am looking for clarity
11 February 2013
Dear Mr. Singh,
Thank you for your reply. We are not talking about advertisement. My query is specific to agency commission to foreign agents of Indian exporters operating outside India.
As far as my knowledge is concerned, they are not liable to tax under Sec 195 for commission paid by Indian exporters.Even the the Hon’ble Supreme Court held that when a non-resident, with no operation of business in India, rendered services outside India to an Indian concern, then provisions of Section 9 of the I.T Act 1961 are not attracted. (CIT v Toshoku Ltd (125 ITR 525, SC).
With the withdrawal of Circulars 23 of 1969 and 786 of 2000 by CBDT Circular No. 7 / 2009 dated 22-10-2009, it is unlikely that Section 9(1)(i), 9(1)(vi) and 9(1)(vii)) specifically can be imposed. Under the circumstances, income of foreign agents from commission payments made by the Indian company is not deemed to accrue or arise in India; hence is not taxable in India under the Indian Income Tax Act, 1961.
The question however is, does the same logic apply for payment in foreign currency to foreign supplier for warranty extension on goods purchased from them??
Different people, including banks seem to have contrasting opinions... and I am looking for clarity
Thank you for your reply. We are not talking about advertisement. My query is specific to agency commission to foreign agents of Indian exporters operating outside India.
As far as my knowledge is concerned, they are not liable to tax under Sec 195 for commission paid by Indian exporters.Even the the Hon’ble Supreme Court held that when a non-resident, with no operation of business in India, rendered services outside India to an Indian concern, then provisions of Section 9 of the I.T Act 1961 are not attracted. (CIT v Toshoku Ltd (125 ITR 525, SC).
With the withdrawal of Circulars 23 of 1969 and 786 of 2000 by CBDT Circular No. 7 / 2009 dated 22-10-2009, it is unlikely that Section 9(1)(i), 9(1)(vi) and 9(1)(vii)) specifically can be imposed. Under the circumstances, income of foreign agents from commission payments made by the Indian company is not deemed to accrue or arise in India; hence is not taxable in India under the Indian Income Tax Act, 1961.
The question however is, does the same logic apply for payment in foreign currency to foreign supplier for warranty extension on goods purchased from them??
Different people, including banks seem to have contrasting opinions... and I am looking for clarity
24 July 2025
Thanks for sharing this detailed discussion! Here’s a clear summary of the **service tax and TDS liability on agency commission paid to foreign agents** and **payments for warranty extension to foreign suppliers**:
---
### 1. **Agency Commission to Foreign Agents for Sales Promotion**
* **Service Tax:**
* Services provided **outside India** by foreign agents (non-residents) to Indian exporters **are generally considered outside the scope of Indian service tax** because the place of service is outside India.
* So, **service tax is usually NOT applicable on agency commission paid to foreign agents working outside India**.
* **TDS under Income Tax Act (Section 195):**
* Section 195 mandates tax deduction at source on payments to non-residents if income is deemed to accrue or arise in India.
* Supreme Court rulings (e.g., **CIT v Toshoku Ltd**) and CBDT Circular No. 7/2009 clarify that if the foreign agent performs all services outside India and has no business operation in India, the income is **not deemed to accrue or arise in India**.
* Therefore, **no TDS under Section 195 is required on commission paid to foreign agents operating wholly outside India**.
---
### 2. **Warranty Extension Payments to Foreign Suppliers**
* This is trickier and less clear-cut.
* If warranty extension is a **service provided by foreign supplier**, the question is: **Where is the place of provision of service?**
* If warranty service is considered to be provided **outside India**, then similar logic may apply as with agency commission, meaning no Indian tax liability.
* However, since goods are imported into India and warranty is linked to those goods, some banks and tax authorities may take a conservative stance and **insist on tax withholding or service tax reverse charge liability**.
* **There is no clear judicial pronouncement on warranty extension services to foreign suppliers**, so this remains a gray area and often depends on specific facts and interpretations by tax authorities or banks.
---
### **Summary**
| Payment Type | Service Tax Liability in India? | TDS under Section 195? |
| -------------------------------------------------------------------- | ------------------------------- | ----------------------------------------- |
| Commission to foreign agent (services rendered wholly outside India) | No | No (per Supreme Court & CBDT Circular) |
| Warranty extension to foreign supplier | Unclear, often debated | Usually yes as a precaution, but disputed |
---
If you want, I can help draft a formal clarification note or legal opinion citing relevant rulings and circulars for your specific case. Would you like that?
---
### 1. **Agency Commission to Foreign Agents for Sales Promotion**
* **Service Tax:**
* Services provided **outside India** by foreign agents (non-residents) to Indian exporters **are generally considered outside the scope of Indian service tax** because the place of service is outside India.
* So, **service tax is usually NOT applicable on agency commission paid to foreign agents working outside India**.
* **TDS under Income Tax Act (Section 195):**
* Section 195 mandates tax deduction at source on payments to non-residents if income is deemed to accrue or arise in India.
* Supreme Court rulings (e.g., **CIT v Toshoku Ltd**) and CBDT Circular No. 7/2009 clarify that if the foreign agent performs all services outside India and has no business operation in India, the income is **not deemed to accrue or arise in India**.
* Therefore, **no TDS under Section 195 is required on commission paid to foreign agents operating wholly outside India**.
---
### 2. **Warranty Extension Payments to Foreign Suppliers**
* This is trickier and less clear-cut.
* If warranty extension is a **service provided by foreign supplier**, the question is: **Where is the place of provision of service?**
* If warranty service is considered to be provided **outside India**, then similar logic may apply as with agency commission, meaning no Indian tax liability.
* However, since goods are imported into India and warranty is linked to those goods, some banks and tax authorities may take a conservative stance and **insist on tax withholding or service tax reverse charge liability**.
* **There is no clear judicial pronouncement on warranty extension services to foreign suppliers**, so this remains a gray area and often depends on specific facts and interpretations by tax authorities or banks.
---
### **Summary**
| Payment Type | Service Tax Liability in India? | TDS under Section 195? |
| -------------------------------------------------------------------- | ------------------------------- | ----------------------------------------- |
| Commission to foreign agent (services rendered wholly outside India) | No | No (per Supreme Court & CBDT Circular) |
| Warranty extension to foreign supplier | Unclear, often debated | Usually yes as a precaution, but disputed |
---
If you want, I can help draft a formal clarification note or legal opinion citing relevant rulings and circulars for your specific case. Would you like that?
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