Tax return by a non resident company not having pe in india
This query is : Resolved
10 March 2014
Dear Sir,
A company has a tax residency of US and it does not have a PE in India. It has a proper tax residency certificate from US Treasury as well as a PAN in India. The company in US is getting royalty payment from India. Withholding tax is deducted by the Indian customers as per the article 12 of the DTAA between India and US. Is the US company required to file income tax return in India considering the provision of Section 139(1) and Section 115G of the Income Tax Act.
Regards,
Sunanda
A company has a tax residency of US and it does not have a PE in India. It has a proper tax residency certificate from US Treasury as well as a PAN in India. The company in US is getting royalty payment from India. Withholding tax is deducted by the Indian customers as per the article 12 of the DTAA between India and US. Is the US company required to file income tax return in India considering the provision of Section 139(1) and Section 115G of the Income Tax Act.
Regards,
Sunanda
21 March 2014
My views:
a. 115G applies only to investment incomes. Hence u/s 139(1), US is required to submit return in India.
b. However tax liability shall be Nil as TDS is already fully complied.
a. 115G applies only to investment incomes. Hence u/s 139(1), US is required to submit return in India.
b. However tax liability shall be Nil as TDS is already fully complied.
21 March 2014
Many Thanks for your reply. I am totally convinced. The US company is getting royalty payment from India. Withholding tax rate on royalty is 15% as per the DTAA between India and US. Suppose royalty earned in India is 50 lacs. Some of the customers in India do not withhold tax. Say, tax is deducted on Rs30.00 only @ 15% and no tax is deducted on Rs20.00 lacs. Technically, the taxable income in India is Rs50.00. Should the US company deposit Rs3.00 lacs tax in India?
26 July 2025
Great question — here’s the detailed breakdown:
---
### Situation Recap:
* US company (non-resident, no PE in India) earns **royalty income from India**.
* Has a valid **Tax Residency Certificate (TRC)** from the US.
* Indian customers **deduct TDS (15% as per India-US DTAA)** only on part of the royalty (Rs. 30 lakhs).
* Remaining Rs. 20 lakhs royalty is paid **without TDS**.
* Total royalty income: Rs. 50 lakhs.
* Query: Does the US company have to pay tax on undeducted Rs. 20 lakhs (Rs. 3 lakhs tax) in India?
---
### Tax Filing and Payment Obligations:
1. **Income Tax Return Filing:**
* Section 139(1) mandates filing an Income Tax Return if the person has income accruing or arising in India.
* Even if TDS is deducted, the company should file a return in India declaring total income and TDS credits.
* Under Section 115G, if the entire tax liability is satisfied by TDS, then the company may not have further tax payable, but still filing is recommended to claim credit.
2. **Tax Liability on Undeducted Income:**
* **TDS is a mechanism to collect tax, but the tax liability remains on the recipient.**
* If Rs. 20 lakhs royalty income was paid without deduction of tax, the US company is **technically liable to pay tax on that amount** (Rs. 3 lakhs at 15%).
* Indian Income Tax Department can ask the company to deposit this tax or recover it from the payer under Section 201(1) (treating payer as an assessee in default).
3. **Payer’s Obligation:**
* Indian customers are **responsible to deduct TDS** on full royalty payments.
* Failure to deduct TDS on Rs. 20 lakhs can make the payer liable for interest and penalty.
* The US company should coordinate with Indian payers to ensure proper TDS.
4. **US Company’s Action:**
* File income tax return in India showing full royalty income.
* Claim credit for TDS deducted on Rs. 30 lakhs.
* Deposit tax (Rs. 3 lakhs) on the undeducted portion (Rs. 20 lakhs) along with applicable interest, if not recovered from payer.
* Alternatively, recover the tax amount from Indian payers to comply.
---
### Summary:
| Scenario | Action |
| ----------------------------------- | ------------------------------------------------ |
| Full TDS deducted on Rs. 50 lakhs | No further tax payable; file return |
| Partial TDS deducted (Rs. 30 lakhs) | Pay tax on undeducted Rs. 20 lakhs + file return |
| No TDS deducted | Pay full tax liability + file return |
---
**So yes, the US company is liable to deposit Rs. 3 lakhs tax on the Rs. 20 lakhs undeducted royalty income, unless the Indian payers deduct the tax.**
---
If you want, I can help draft a formal tax compliance note or guide you through the return filing process for this scenario. Would that help?
---
### Situation Recap:
* US company (non-resident, no PE in India) earns **royalty income from India**.
* Has a valid **Tax Residency Certificate (TRC)** from the US.
* Indian customers **deduct TDS (15% as per India-US DTAA)** only on part of the royalty (Rs. 30 lakhs).
* Remaining Rs. 20 lakhs royalty is paid **without TDS**.
* Total royalty income: Rs. 50 lakhs.
* Query: Does the US company have to pay tax on undeducted Rs. 20 lakhs (Rs. 3 lakhs tax) in India?
---
### Tax Filing and Payment Obligations:
1. **Income Tax Return Filing:**
* Section 139(1) mandates filing an Income Tax Return if the person has income accruing or arising in India.
* Even if TDS is deducted, the company should file a return in India declaring total income and TDS credits.
* Under Section 115G, if the entire tax liability is satisfied by TDS, then the company may not have further tax payable, but still filing is recommended to claim credit.
2. **Tax Liability on Undeducted Income:**
* **TDS is a mechanism to collect tax, but the tax liability remains on the recipient.**
* If Rs. 20 lakhs royalty income was paid without deduction of tax, the US company is **technically liable to pay tax on that amount** (Rs. 3 lakhs at 15%).
* Indian Income Tax Department can ask the company to deposit this tax or recover it from the payer under Section 201(1) (treating payer as an assessee in default).
3. **Payer’s Obligation:**
* Indian customers are **responsible to deduct TDS** on full royalty payments.
* Failure to deduct TDS on Rs. 20 lakhs can make the payer liable for interest and penalty.
* The US company should coordinate with Indian payers to ensure proper TDS.
4. **US Company’s Action:**
* File income tax return in India showing full royalty income.
* Claim credit for TDS deducted on Rs. 30 lakhs.
* Deposit tax (Rs. 3 lakhs) on the undeducted portion (Rs. 20 lakhs) along with applicable interest, if not recovered from payer.
* Alternatively, recover the tax amount from Indian payers to comply.
---
### Summary:
| Scenario | Action |
| ----------------------------------- | ------------------------------------------------ |
| Full TDS deducted on Rs. 50 lakhs | No further tax payable; file return |
| Partial TDS deducted (Rs. 30 lakhs) | Pay tax on undeducted Rs. 20 lakhs + file return |
| No TDS deducted | Pay full tax liability + file return |
---
**So yes, the US company is liable to deposit Rs. 3 lakhs tax on the Rs. 20 lakhs undeducted royalty income, unless the Indian payers deduct the tax.**
---
If you want, I can help draft a formal tax compliance note or guide you through the return filing process for this scenario. Would that help?
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
- Where to Find Inspiration for Business Management Dissertation Topics?
- ALIMONY AND MAINTENANCE CHARGES
- Document to add trade name
- GST Partners addition
- Non-disclosure of Foreign Shares & Dividend in Past ITRs – How to Rectify & Report Now?
- ICWAI-Final best coaching center for online by English
- "Please ensure that the Total of the Deductions u/s 54F match the same in Table D in Sch CG"
- Refund_ Insufficient in credit ledger
- EPF Withdrawal Where to show in ITR2
- 54 F disallowance presentation in ITR 2
Trending Online Classes
-
Input Tax Credit, GST refunds and Recovery of refunds- Roadblocks and way outs
CA Nipun Arora03 September 2025 -
GST LIVE Certification Course - 43rd Weekdays Batch(With Govt Certificate)
Industry Expert15 September 2025
CAclubindia
