TDS - Interest paid for extension of DA condition

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This discussion explores whether withholding tax (TDS) under Section 195 of Indian tax law applies to interest paid for extending payment terms (DA conditions) on car export shipments. The transporter is an associated enterprise. Experts suggest that if the recipient is a non-resident, Section 195 is relevant, whereas Section 194A only applies to residents.

dharani p

dharani p (Querist)

27 May 2020 Dear Experts,

Kindly share your views on applicability of withholding tax for the below one,

Company has to pay shipment transportation charges for exporting cars to outside India. Transporter is one of the associated enterprise of the company. As per service agreement company has to make payment as per DA Conditions. In case company unable to make payment they will allow to extend DA condition for few days as per the agreement. We have to pay Interest for the extension period. My query is whether this Interest for extension of DA is liable to Tax u/Sec 195? Kindly suggest me what are the tax implications for this.

Thanks & Regards,
Dharani

C.A. Mayur J. Raiyani

C.A. Mayur J. Raiyani (Expert)

29 May 2020 in my view if residency rule i.e. POEM triggers then TDS covered u/s 195 else u/s 194A

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

14 June 2020 Section 194A is only applicable to a resident. Thus, the provisions of section 194A are not applicable in case of payment of interest to a non-resident. Payments made to non-residents are also covered under TDS mechanism. However, tax in such a case is to be deducted as per Section 195.

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