TDS & DTAA
This query is : Resolved
28 October 2009
Dear Friends..
Kindly advice for the query stated below asap…
A resident company has given advertisement contract to nonresident company in US. The nonresident company shall put up the advertisement on its site. Is the company while making payment supposed to deduct TDS? If yes at what rate and under what Article of DTAA between US & India shall be applicable.
The above shall not fall u/s 194 C as its for payments to resident…
If reference of sec 9 is taken then dilemma is that it shall fall under 9(1)(vi) or 9(1)(vii)(b)…
Reply awaited...
Kindly advice for the query stated below asap…
A resident company has given advertisement contract to nonresident company in US. The nonresident company shall put up the advertisement on its site. Is the company while making payment supposed to deduct TDS? If yes at what rate and under what Article of DTAA between US & India shall be applicable.
The above shall not fall u/s 194 C as its for payments to resident…
If reference of sec 9 is taken then dilemma is that it shall fall under 9(1)(vi) or 9(1)(vii)(b)…
Reply awaited...
28 October 2009
Hi pooja
in respect of ur querry, the payment of advertisment to non resident co will be covered under business profit i.e article 7 of the DTAA with US which needs to be read with article 5 of the DTAA i.e permanent establishment.
the above article read as in absence of PE in India NO tds is required to be deducted
in respect of ur querry, the payment of advertisment to non resident co will be covered under business profit i.e article 7 of the DTAA with US which needs to be read with article 5 of the DTAA i.e permanent establishment.
the above article read as in absence of PE in India NO tds is required to be deducted
03 November 2009
thnks a lot for ur reply.....
bt can u jus let me knw whether it will fall under "make available clause"
bt can u jus let me knw whether it will fall under "make available clause"
05 November 2009
..
27 July 2025
This is a common and complex area involving **TDS on payments to non-residents** and the applicability of the **India–US Double Taxation Avoidance Agreement (DTAA)**. Here's a structured analysis and answer to your query:
---
### ✅ **Scenario Recap:**
* Indian company (resident) pays a **US-based non-resident company**.
* The payment is for **advertising services on the non-resident’s website**.
* Question: **Is TDS applicable?** If yes, **at what rate**, and **under which Article of DTAA**?
---
### ✅ **Step 1: Is TDS under the Income Tax Act applicable (Section 195)?**
Yes.
> As per **Section 195**, any person making payment to a non-resident that is **chargeable to tax in India** must **deduct TDS** at applicable rates.
So, the first test is: **Is the payment chargeable to tax in India?**
---
### ✅ **Step 2: Nature of Payment – Is it “Fees for Technical Services (FTS)” or “Royalty”?**
This depends on what the US company is doing:
#### 🔸 If the US company **just displays ads** on its website:
* It’s **not “technical services”** under **Section 9(1)(vii)**.
* It’s **not “royalty”** under **Section 9(1)(vi)** unless it grants use of copyright or content.
👉 **Conclusion**: It is **business income**, and **not taxable in India** unless the **non-resident has a Permanent Establishment (PE)** in India.
---
### ✅ **Step 3: Applicability of DTAA (India–USA)**
Under the **India–US DTAA**:
* **Business Profits (Article 7)** are taxable in India **only if the non-resident has a PE in India**.
* **Advertisement services** on a website **do not constitute a PE** unless the non-resident has an office or agent in India.
👉 **Therefore**, under DTAA, **such payments are not taxable in India**, and **no TDS** is required if:
* You obtain a **Tax Residency Certificate (TRC)** from the US vendor
* You obtain a **No PE declaration** from the vendor
---
### ✅ **Step 4: What should the Indian company do?**
You must comply with **Section 195** and **DTAA** relief provisions:
1. **Obtain from the US company**:
* Tax Residency Certificate (TRC)
* No PE declaration
* PAN (if possible, to avoid higher TDS u/s 206AA)
2. **File Form 15CA & 15CB** before remittance.
3. **No TDS** is required if documentation is in place and no income is taxable in India.
---
### ✅ **Alternative View (Conservative Approach):**
If there is any doubt, or if no TRC/No PE declaration is obtained:
* TDS may be deducted **@10% plus surcharge & cess** under **Section 195**, considering the payment as FTS or business income **possibly taxable in India**.
---
### ✅ **Conclusion:**
| Aspect | Answer |
| ------------------------ | --------------------------------------------- |
| Is TDS applicable? | **No**, if DTAA applies and no PE in India |
| Relevant section | Section 195 |
| Applicable DTAA Article | Article 7 (Business Profits) of India–US DTAA |
| Documentation needed | TRC, No PE declaration, Form 15CA/CB |
| Risk if no documentation | TDS @ 10% (or higher u/s 206AA if no PAN) |
---
Would you like a sample **No PE Declaration** format or a **Form 15CB CA certificate template** for this case?
---
### ✅ **Scenario Recap:**
* Indian company (resident) pays a **US-based non-resident company**.
* The payment is for **advertising services on the non-resident’s website**.
* Question: **Is TDS applicable?** If yes, **at what rate**, and **under which Article of DTAA**?
---
### ✅ **Step 1: Is TDS under the Income Tax Act applicable (Section 195)?**
Yes.
> As per **Section 195**, any person making payment to a non-resident that is **chargeable to tax in India** must **deduct TDS** at applicable rates.
So, the first test is: **Is the payment chargeable to tax in India?**
---
### ✅ **Step 2: Nature of Payment – Is it “Fees for Technical Services (FTS)” or “Royalty”?**
This depends on what the US company is doing:
#### 🔸 If the US company **just displays ads** on its website:
* It’s **not “technical services”** under **Section 9(1)(vii)**.
* It’s **not “royalty”** under **Section 9(1)(vi)** unless it grants use of copyright or content.
👉 **Conclusion**: It is **business income**, and **not taxable in India** unless the **non-resident has a Permanent Establishment (PE)** in India.
---
### ✅ **Step 3: Applicability of DTAA (India–USA)**
Under the **India–US DTAA**:
* **Business Profits (Article 7)** are taxable in India **only if the non-resident has a PE in India**.
* **Advertisement services** on a website **do not constitute a PE** unless the non-resident has an office or agent in India.
👉 **Therefore**, under DTAA, **such payments are not taxable in India**, and **no TDS** is required if:
* You obtain a **Tax Residency Certificate (TRC)** from the US vendor
* You obtain a **No PE declaration** from the vendor
---
### ✅ **Step 4: What should the Indian company do?**
You must comply with **Section 195** and **DTAA** relief provisions:
1. **Obtain from the US company**:
* Tax Residency Certificate (TRC)
* No PE declaration
* PAN (if possible, to avoid higher TDS u/s 206AA)
2. **File Form 15CA & 15CB** before remittance.
3. **No TDS** is required if documentation is in place and no income is taxable in India.
---
### ✅ **Alternative View (Conservative Approach):**
If there is any doubt, or if no TRC/No PE declaration is obtained:
* TDS may be deducted **@10% plus surcharge & cess** under **Section 195**, considering the payment as FTS or business income **possibly taxable in India**.
---
### ✅ **Conclusion:**
| Aspect | Answer |
| ------------------------ | --------------------------------------------- |
| Is TDS applicable? | **No**, if DTAA applies and no PE in India |
| Relevant section | Section 195 |
| Applicable DTAA Article | Article 7 (Business Profits) of India–US DTAA |
| Documentation needed | TRC, No PE declaration, Form 15CA/CB |
| Risk if no documentation | TDS @ 10% (or higher u/s 206AA if no PAN) |
---
Would you like a sample **No PE Declaration** format or a **Form 15CB CA certificate template** for this case?
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