Tds- lower deduction of tax

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jaman (Querist)
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21 May 2014 Sir,

We have recieved a certificate u/s 197 for Co. having Indian PAN and address at Gurgaon (Which is indian branch of forign Co.) for a sum of indian rupees.

now we get the invoice from forign office of same company and bill amount is in USD.

can we make the payment on the basis of this invoice or have to obtain invoice in INR from indian branch for deducting of lower rate of TDS as per certificate.

Rupesh Jain

Rupesh Jain (Expert)
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21 May 2014 PLS GET THE INVOICE FROM company who submit the certificate u/s 197 to you. due to certificate for indian rupees and for indian co. not for foreign company.

jaman

jaman (Querist)
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21 May 2014 status opened for another opinion please

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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27 July 2025 Good question! Here's how it generally works for **TDS and lower deduction certificates under Section 197** when dealing with foreign invoices and Indian branches:

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### Scenario Summary:

* You have a **lower deduction certificate u/s 197** issued to the **Indian branch** of a foreign company (with Indian PAN and address).
* The **invoice is from the foreign office** (outside India), billed in USD.
* You want to know if payment can be made based on the foreign invoice or if you must get an invoice in INR from the Indian branch to apply the lower TDS rate.

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### Key points to consider:

1. **TDS deduction is based on the actual payment made** and the **recipient of the payment** as per the invoice and contract.

* If the invoice is from the **foreign office**, payment is going to the foreign entity, not the Indian branch.
* The lower deduction certificate applies **only to the Indian branch** (the deductee for whom PAN and address are provided).

2. **Applicability of Section 197 Certificate:**

* The certificate is issued **to the Indian branch**, so it is valid only if the payment is made to the **Indian branch**.
* If payment is made to the foreign entity, this certificate **cannot be used** to deduct tax at a lower rate because the foreign entity is a different deductee.

3. **Invoice in INR vs. Foreign Currency:**

* The currency of invoice (USD or INR) is secondary. What matters is the **entity to which the payment is made**.
* If the payment is made to the Indian branch, the invoice should ideally be from Indian branch (in INR), and you can apply the lower TDS certificate.
* If the invoice is from the foreign office, you are paying the foreign company and not the Indian branch.

4. **Tax Deduction on Payments to Foreign Entity:**

* Payments to foreign companies attract TDS under **Section 195** (tax on payments to non-residents).
* The lower deduction certificate under Section 197 issued to the Indian branch **does not cover payments to the foreign entity**.
* You need to check if you have a separate lower deduction certificate applicable under Section 195 or DTAA provisions for the foreign company.

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### Conclusion:

* If you want to deduct TDS as per the lower deduction certificate issued to the Indian branch, **payment should be made to the Indian branch**, supported by an invoice from them in INR.
* If payment is made to the foreign office (invoice in USD from foreign office), you **cannot apply the Section 197 certificate issued to the Indian branch**. Instead, TDS has to be deducted under Section 195 as applicable, unless you have a certificate under Section 195 or relevant DTAA provisions.

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### Suggestion:

* Request the Indian branch to raise the invoice in INR for the payment you are making to them.
* Or, if payment must be made to the foreign entity, follow TDS provisions for non-resident payments under Section 195.

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If you want, I can help draft a request email to the vendor for the Indian branch invoice in INR. Would that help?

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