Tds applicability in sri lanka

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

31 October 2016 Hello,

My query is as follows - We as a Private Limited Company have been making payments to companies in Sri Lanka in USD. For each payment, 15CA/CB was used. The Sri Lankan company provided TRC along with the declaration stating they do not have any permanent establishment in india. Since there is DTAA with Sri Lanka and my present company got the declaration from the Sri Lankan company along with the TRC, TDS was not deducted by my present company (a pvt ltd company).

However, the company opened a new office in Sri Lanka in May 2016 along with local bank account in Sri Lanka. The company has started making payments (the gross invoice value) to Sri Lankan companies (business payments) from the local Sri Lankan Bank Account in Sri Lankan Currency (LKR). This means that from making payments in USD earlier, payment is now being made in LKR. No declaration is being provided by the payee company, 15CA/CB is not being used any more.

I have recently joined here. My question is - is the process of making payment in LKR correct without applying any TDS provisions? Are we not supposed to deduct TDS before making payment even though it is paid in LKR? Are we supposed to deduct TDS at 20%?

Would really appreciate your opinion?

Amol S Joglekar

Amol S Joglekar (Expert)
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01 November 2016 which section of income tax is bothering you? is it 195?

Querist : Anonymous

Querist : Anonymous (Querist)

01 November 2016 Yes. It is Sec 195. How should we move ahead with these payments?

Amol S Joglekar

Amol S Joglekar (Expert)
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01 November 2016 Section 195 is not hit.
Your Indian Company has opened one office in Sri Lanka. Right? INR is transferred to Sri Lanka Office, which in turn pays to Sri Lankan Company. Right?
Since in the first place, the Indian Company is transferring money to its own office, section 195 is not hit.
In the second place, the Sri Lamkan Office of Indian Company is paying to Sri Lankan Company. This is also out of scope of section 195.
(Just give me one more answer.......in earlier scenario of 15CA and CB, was TDS done, when Indian Company used to pay to Sri Lankan Company?)

Querist : Anonymous

Querist : Anonymous (Querist)

01 November 2016 I want to state one fact here - INR is transferred from Indian company. Also, the billing for Sri Lanka cases is done in LKR and debtors pay directly to Sri Lankan Bank for all Sri LANKA BUSINESS.

In earlier cases of 15CA/CB, no TDS was deducted. 15CA/CB was filed and the entire gross amount was paid. I have a confusion here also - are we not supposed to deduct TDS even when we are filing 15CA/CB? The TDS rate would depend on DTAA rate or 20% which ever is lower.

Amol S Joglekar

Amol S Joglekar (Expert)
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02 November 2016 No. That is NOT the intention of LAW.
TDS is required to be done under 15CA/CB, when the transaction is TAXABLE in India.
Income Tax Act is not designed to cause hardships to assessee.

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