TDS on commission to Foreign co
This query is : Resolved
16 November 2010
We are manufacturer. We had imported some material from china. The co had raised inv on us for the material and debit note for Commission on imported inv amt. This Co does not have any office in India. It is pore foreign co. My query is, do we deduct TDS on Commission? if yes than @ what rate? and if no. then why?
Shan
Shan
17 November 2010
Shankar,
What for commission is being paid to the China Vendor?
OR Commission is paid to other agent who had helped in acquiring the materials?
If the commission is paid to pure agent,(independent broker)no income arise or deemed to accrue or arises hence no TDS
On the other hand, Ifyou have business connection, & by virtue of this bussiness connection eventhough the commission is paid outside India, TDS applies by the provision of Sec 9(1)
What for commission is being paid to the China Vendor?
OR Commission is paid to other agent who had helped in acquiring the materials?
If the commission is paid to pure agent,(independent broker)no income arise or deemed to accrue or arises hence no TDS
On the other hand, Ifyou have business connection, & by virtue of this bussiness connection eventhough the commission is paid outside India, TDS applies by the provision of Sec 9(1)
18 November 2010
Dear Madhusudan sir,
Thanks for the reply.
We are paying commission to the Vendor from whom we had imported the goods. As per you we have to deduct TDS at the time of payment but at what percentage. Please reply.
thanks
Shankar
Thanks for the reply.
We are paying commission to the Vendor from whom we had imported the goods. As per you we have to deduct TDS at the time of payment but at what percentage. Please reply.
thanks
Shankar
18 November 2010
I am not very clear whether there exist any business connection with your company?
IF AT ALL TDS IS APPLICABLE KINDLY GOTHROUGH THE LINK
https://law.incometaxindia.gov.in/DIT/File_opener.aspx?fn=https://law.incometaxindia.gov.in/Directtaxlaws/cbdt/dta/A1_China.htm
WHICH IS DTAA OF INDIA & CHINA.
IF THE VENDOR DOES NOT HAVE PAN IN INDIA, THEN SIMPLY DEDUCT 20%.
IF AT ALL TDS IS APPLICABLE KINDLY GOTHROUGH THE LINK
https://law.incometaxindia.gov.in/DIT/File_opener.aspx?fn=https://law.incometaxindia.gov.in/Directtaxlaws/cbdt/dta/A1_China.htm
WHICH IS DTAA OF INDIA & CHINA.
IF THE VENDOR DOES NOT HAVE PAN IN INDIA, THEN SIMPLY DEDUCT 20%.
18 November 2010
Dear Madhusudan sir,
Thanks for the reply.
The vendor does not have any PAN no because he is from China. and we have connection with the vendor. As per our consultant any income earned in India is liable for Tax and we should have to deduct TDS @ 30%. Pl confirm.
thanks
Shankar
Thanks for the reply.
The vendor does not have any PAN no because he is from China. and we have connection with the vendor. As per our consultant any income earned in India is liable for Tax and we should have to deduct TDS @ 30%. Pl confirm.
thanks
Shankar
27 July 2025
Thanks for sharing the detailed scenario. Let me clarify the TDS on commission paid to a foreign company (like your vendor in China):
---
### Situation Recap:
* You are paying **commission to your Chinese vendor** (no office/PE in India).
* Commission is part of invoice/debit note related to imported goods.
* Vendor **does not have a PAN** in India.
* You want to know **whether to deduct TDS** and at what rate.
---
### Key Points & Law:
1. **Section 195: TDS on payments to Non-residents**
* Any sum payable to a non-resident, including commission, that is chargeable to tax in India is subject to TDS under Section 195.
* The question is: **Is this commission income taxable in India?**
---
2. **Deemed Income under Section 9(1)**
* Under **Section 9(1)(i)**, income is deemed to accrue or arise in India if it is received or deemed to be received in India or accrues or arises or is deemed to accrue or arise in India from any business connection in India.
* If the foreign vendor has a **business connection in India**, the commission income may be deemed to accrue in India.
---
3. **Is commission taxable here?**
* Since commission is paid to a vendor for goods imported **and vendor has no PE/office in India**, but you mention **there is a business connection** — so the commission may be taxable in India.
* In that case, you **must deduct TDS** on commission payment.
---
4. **What rate to deduct?**
* If no **Double Taxation Avoidance Agreement (DTAA)** benefit is claimed, or PAN is not available:
* **TDS is deducted at 30% plus applicable surcharge and cess.**
* If DTAA applies (India-China), you should refer to the treaty:
* Typically, DTAA rates for business profits or fees for technical services might be lower than 30%.
* You need to withhold tax at DTAA rate only if the vendor furnishes a Tax Residency Certificate (TRC) and other documentation.
---
5. **If vendor has no PAN**
* TDS at **20% (plus surcharge and cess)** on the gross amount is deducted as per Section 206AA (Non-PAN deduction rate).
* But here, since it’s commission to a foreign company, **30% TDS applies** (subject to DTAA) if income is taxable in India.
---
### Summary for your case:
| Condition | TDS Applicable? | TDS Rate |
| ------------------------------------------------------------ | --------------- | ---------------------------------- |
| Vendor has business connection in India, income taxable here | Yes | 30% + surcharge + cess |
| Vendor claims DTAA benefits with TRC | Yes | Lower rate as per India-China DTAA |
| Vendor no PAN | Yes | 30% (no concession) |
| No business connection, income outside India | No | No TDS |
---
### Action points:
* Confirm if vendor has any PE or business connection in India.
* If yes, deduct TDS at 30% on commission payment.
* Request vendor for Tax Residency Certificate (TRC) if they want DTAA benefit.
* Deduct and deposit TDS under Section 195.
* Issue Form 16A to vendor.
* File TDS return.
---
If you want, I can also help you draft a letter or TDS calculation format for this case. Would you like that?
---
### Situation Recap:
* You are paying **commission to your Chinese vendor** (no office/PE in India).
* Commission is part of invoice/debit note related to imported goods.
* Vendor **does not have a PAN** in India.
* You want to know **whether to deduct TDS** and at what rate.
---
### Key Points & Law:
1. **Section 195: TDS on payments to Non-residents**
* Any sum payable to a non-resident, including commission, that is chargeable to tax in India is subject to TDS under Section 195.
* The question is: **Is this commission income taxable in India?**
---
2. **Deemed Income under Section 9(1)**
* Under **Section 9(1)(i)**, income is deemed to accrue or arise in India if it is received or deemed to be received in India or accrues or arises or is deemed to accrue or arise in India from any business connection in India.
* If the foreign vendor has a **business connection in India**, the commission income may be deemed to accrue in India.
---
3. **Is commission taxable here?**
* Since commission is paid to a vendor for goods imported **and vendor has no PE/office in India**, but you mention **there is a business connection** — so the commission may be taxable in India.
* In that case, you **must deduct TDS** on commission payment.
---
4. **What rate to deduct?**
* If no **Double Taxation Avoidance Agreement (DTAA)** benefit is claimed, or PAN is not available:
* **TDS is deducted at 30% plus applicable surcharge and cess.**
* If DTAA applies (India-China), you should refer to the treaty:
* Typically, DTAA rates for business profits or fees for technical services might be lower than 30%.
* You need to withhold tax at DTAA rate only if the vendor furnishes a Tax Residency Certificate (TRC) and other documentation.
---
5. **If vendor has no PAN**
* TDS at **20% (plus surcharge and cess)** on the gross amount is deducted as per Section 206AA (Non-PAN deduction rate).
* But here, since it’s commission to a foreign company, **30% TDS applies** (subject to DTAA) if income is taxable in India.
---
### Summary for your case:
| Condition | TDS Applicable? | TDS Rate |
| ------------------------------------------------------------ | --------------- | ---------------------------------- |
| Vendor has business connection in India, income taxable here | Yes | 30% + surcharge + cess |
| Vendor claims DTAA benefits with TRC | Yes | Lower rate as per India-China DTAA |
| Vendor no PAN | Yes | 30% (no concession) |
| No business connection, income outside India | No | No TDS |
---
### Action points:
* Confirm if vendor has any PE or business connection in India.
* If yes, deduct TDS at 30% on commission payment.
* Request vendor for Tax Residency Certificate (TRC) if they want DTAA benefit.
* Deduct and deposit TDS under Section 195.
* Issue Form 16A to vendor.
* File TDS return.
---
If you want, I can also help you draft a letter or TDS calculation format for this case. Would you like that?
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