TDS Applicability in case of Import of Service

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SUDHEEP M (Querist)

23 June 2022 Sir,

I want to know the TDS applicability in Respect of import of service from a non resident person and the service was software support service. At what rate TDS should be deducted and under which section?

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

11 July 2024 When making payments for services received from a non-resident person, particularly software support services, TDS (Tax Deducted at Source) provisions under Indian income tax law are applicable. Here are the details you need:

### TDS Applicability

1. **Nature of Service**: Software support services provided by a non-resident.

2. **Rate of TDS**: As per Section 195 of the Income Tax Act, 1961, the rate of TDS applicable on payments made to non-residents for services (including software support services) is 10% of the gross amount paid or payable. This rate can be further modified by relevant Double Taxation Avoidance Agreement (DTAA) between India and the country of residence of the non-resident service provider. DTAA may specify a lower rate of TDS, which should be considered if applicable.

3. **Section Under Which TDS is Deducted**: TDS on payments to non-residents for services is governed by Section 195 of the Income Tax Act, 1961.

### Steps to Deduct TDS:

1. **Determine Payment Trigger**: TDS liability arises at the time of credit or payment of the service fees, whichever is earlier.

2. **Calculate TDS**: Apply the applicable rate (typically 10%, unless reduced by DTAA) on the gross amount of payment made or payable to the non-resident service provider.

3. **Deposit TDS**: Deposit the deducted TDS amount to the government within the prescribed due dates.

4. **File TDS Return**: File the TDS return in Form 27Q to report the TDS deductions made.

### Compliance and Documentation:

- **Tax Deduction**: Ensure TDS is deducted at the time of payment or credit, whichever is earlier.

- **Form 15CA/CB**: Obtain Form 15CA (Declaration) and Form 15CB (Certificate) from a chartered accountant if required, depending on the nature and amount of payment.

- **Documentation**: Maintain proper documentation including invoices, agreements, Form 15CA/CB (if applicable), and proof of TDS payment for audit and compliance purposes.

### Conclusion:

It's crucial to comply with TDS provisions to avoid interest, penalties, and other consequences. The applicable rate of TDS and specific compliance requirements should be checked with reference to the latest tax laws and DTAA provisions. If in doubt, consulting a tax professional or chartered accountant would ensure accurate compliance with TDS regulations.

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