TDS ON COMMISSION PAID TO FOREIGN CO

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niranjan (Querist)
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26 June 2009 AN INDIAN CO PAID COMMISSION IN FOREIGN CURRENCY TO A FOREIGN CO,FOR HELPING IN SECURING ORDERS FOR SALE OF GOODS OUTSIDE INDIA, WHETHER TDS TO BE DEDUCTED ON SUCH PAYMENT.

CA.BHARAT BHUSHAN

CA.BHARAT BHUSHAN (Expert)
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27 June 2009 Kindly refer to circular No:23 dated 23.01.1969 and 786 dated 07.02.2000, it is given that where non-resident agent operate outside India, no part of his income arises in India. Such commission is remitted directly abroad, it cannot be held to have been received by or on behalf of the agent in India, therefore held to be non-taxable in India. Hence No tax is deductible U/s 195.

niranjan

niranjan (Querist)
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13 August 2009 Respected Bharat Ji Thank you for your kind input, but in such case a question arrises whether to treat such income of the agent as indian income or not as the foreign agent is in contract with the indian party,and such commission is paid to him in pursuance to such contract. rest for your input.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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27 July 2025 Great question! Here’s a clear explanation regarding **TDS on commission paid to a foreign company** for helping secure export orders:

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### 1. **Is TDS deductible on commission paid to a foreign company (non-resident)?**

* Generally, **Section 195** of the Income Tax Act, 1961 mandates TDS on any sum payable to a non-resident which is chargeable to tax in India.
* However, whether tax is deductible depends on whether the income is deemed to arise or accrue in India.

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### 2. **Income arising outside India?**

* **Circular No. 23 dated 23.01.1969** and **Circular No. 786 dated 07.02.2000** clarify that if the foreign agent operates **outside India**, the income does **not accrue or arise in India**.
* Since the foreign company is helping in securing orders **outside India** and commission is paid in foreign currency outside India, such income is considered **not taxable in India**.
* Therefore, **no TDS under Section 195** is required on such commission payments.

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### 3. **Key condition:**

The foreign agent/company **must perform all activities outside India** (e.g., securing orders abroad without Indian presence or operation).

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### 4. **Contractual relationship & taxability**

* Even if there is a contract between the Indian company and foreign company, income is taxable **only if it is earned or deemed to accrue in India**.
* Commission for services rendered **outside India** is generally not taxable in India.
* If the foreign agent has a **PE (Permanent Establishment) in India** or performs activities in India, then the commission could be taxable.

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### 5. **Practical suggestion**

* Maintain documentary evidence proving that the foreign company operates **outside India** and services are rendered abroad.
* Get a **Tax Residency Certificate (TRC)** and/or a certificate under the relevant **Double Taxation Avoidance Agreement (DTAA)** if applicable.
* Take a **legal opinion or certificate from an Indian tax authority** if needed.

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### **Summary**

| Situation | TDS Requirement on Commission to Foreign Company |
| --------------------------------------------------------------------------------------- | ------------------------------------------------ |
| Foreign agent operates entirely outside India, commission paid for orders outside India | **No TDS under Section 195** |
| Foreign agent has PE in India or performs services in India | TDS under Section 195 applicable |

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Would you like me to help draft a note or checklist for your company on TDS compliance for foreign payments?

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