TDS
This query is : Resolved
22 July 2010
Company is paying commission to non resident. In order to avoid TDS on that they are making direct payment to that person. ie Expense A/C Dr
To Bank A/C
Is it right to have this practice, company is voilating which section and what is consequences of this voilation???????????
To Bank A/C
Is it right to have this practice, company is voilating which section and what is consequences of this voilation???????????
22 July 2010
Yes this procedure is wrong and will be detected by AO after all you are debiting expenses i.e. coommission on which TDS should be deducted. As a result the entire amount will be disallowed.
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22 July 2010
can u further explain the query pl... for some non-resident TDS does not apply since their income does not arise or accrue in india... there are various circulars and clauses in DTAA which supports this
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23 July 2010
Company is paying to a non resident commission but they are not deducting TDS on the same. The person is selling agent and on that company is paying commission. Company is making payment in USD. Company is export oriented entity and this NR is generating sales order for the company. So is TDS applicable?????????????
23 July 2010
The following is an extract of Circular 786 dated 7th February, 2000.
“The deduction of tax at source under section 195 would arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No 23 dated 23.7.1969 is drawn, where the taxability of 'Foreign Agents of Indian Exporters" was considered alongwith certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments are therefore held to be not taxable in India. The relevant sections, namely section 5(2) and section 9 of the Income-tax Act, 1961 not having undergone any change in this regard, the clarification in Circular No 23 shall prevails. No tax is therefore deductible under section 195 and consequently the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure…….”
So section 195 is not attracted and therefore No tds is required. Since TDS is not required as per board's circular there cannot be any question of disallowance
“The deduction of tax at source under section 195 would arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No 23 dated 23.7.1969 is drawn, where the taxability of 'Foreign Agents of Indian Exporters" was considered alongwith certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments are therefore held to be not taxable in India. The relevant sections, namely section 5(2) and section 9 of the Income-tax Act, 1961 not having undergone any change in this regard, the clarification in Circular No 23 shall prevails. No tax is therefore deductible under section 195 and consequently the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure…….”
So section 195 is not attracted and therefore No tds is required. Since TDS is not required as per board's circular there cannot be any question of disallowance
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