Tax on payment to a foreign national for a service

Save Share

This query is : Resolved

M. V. Sagar (Querist)

27 January 2021 I am thinking of taking a copy-editing service from a UK foreign national. He is not an NRI. For this, I need to pay about eighty thousand INR through an intermediary freelancing websites. Though I am a freelancer myself in my own profession, the service I plan to take is not related to my profession at all. Could somebody answer if I need to to pay any tax on the payment I am going to make? Note the amount to be paid is not my income, rather it is my expenditure for a private work/use that is not my business. The service itself is business to the foreign national. He does not have any office in India and he himself is a professional freelancer.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

11 July 2024 In the scenario you described, where you are paying a UK national for copy-editing services through an intermediary freelancing website, here are the tax implications you need to consider:

### Tax Implications:

1. **Tax Deducted at Source (TDS):**
- As per Indian tax laws (Section 195 of the Income Tax Act), payments made to non-residents (foreign nationals in this case) for services rendered outside India are subject to TDS, unless specifically exempted.
- The rate of TDS applicable on such payments to non-residents is usually 10% (plus applicable surcharge and cess), unless reduced under a tax treaty between India and the UK or unless the payment is specifically exempted.

2. **Exemption and Lower TDS Rate:**
- If there is a tax treaty between India and the UK, such as the Double Taxation Avoidance Agreement (DTAA), it may provide for a lower rate of TDS or exemption from TDS on payments for certain types of services.
- You would need to check the specific provisions of the tax treaty to determine if the payment for copy-editing services is covered and whether any reduced rate or exemption applies.

3. **Payment Mechanism (Through Intermediary):**
- Payments made through freelancing platforms act as intermediaries. Typically, these platforms deduct applicable taxes (including TDS) on behalf of the payer (you) before transferring funds to the recipient (UK national).
- Ensure that the freelancing platform complies with Indian tax laws by deducting TDS, if applicable, and issuing Form 16A or other required documents.

### Steps to Ensure Compliance:

- **Consult a Tax Advisor:** Given the specific nature of the transaction and potential applicability of tax treaties, it is advisable to consult with a qualified tax advisor or chartered accountant who can provide guidance tailored to your situation.

- **Check Tax Treaty:** Verify if there is a tax treaty between India and the UK, and review the provisions related to payments for professional services. This will clarify the applicable TDS rate or any exemption.

- **Documentation:** Ensure proper documentation is maintained for the payment, including invoices, contract/agreement with the freelancer, and any communication related to the service provided.

### Conclusion:

While the payment you are making is for a service and not your income, Indian tax laws require TDS to be deducted on payments made to non-residents for services rendered outside India, unless exempted under the tax treaty. Understanding these provisions and ensuring compliance will help you manage your tax obligations effectively.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now