15 July 2010
a non resident receives commission from india should the payee should deduct tds?
case:were a indian company sale goods outside india through a broker(who is a non resident) who receives commission @ 3% on sales.the company sales 3crores through the agent.
query: commission paid to NR, tds should be deducted? if no tds is deduceted can commission expenses is adimisable as per IT?
15 July 2010
TDS will deducted considering section 195 and DTAA .
If the PAN is not provided to the Indian party, then the Indian party is required to deduct tax on the foreign payment at the highest of the following rates:
1. at the rate specified in the Income Tax Act, 1961 2. at the rates in force (rate specified in the Finance Act or under the double tax treaty) 3. at 20%
15 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
CAclubindia
