We have received consultancy services for our software from our group company which is in Germany. Now we have to pay consultancy charges to them, so are we required to deduct TDS U/S 195?? If yes then which TDS form is required for file TDS return and how??
27 July 2025
Here’s a detailed answer for your query about **TDS on payments to a foreign company under Section 195**:
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### 1. **Is TDS Deductible on Payment to Foreign Company?**
* Yes, **TDS is required to be deducted under Section 195** on any payment made to a foreign company for services (like consultancy). * Section 195 covers **any sum payable to a non-resident** which is chargeable to tax in India.
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### 2. **TDS Rate and Taxability**
* The applicable TDS rate depends on:
* The **nature of service/payment**. * **DTAA (Double Tax Avoidance Agreement)** between India and the foreign company’s country (Germany in your case). * Usually, **consultancy fees** are taxable as **Fees for Technical Services** under India-Germany DTAA. * You need to check the exact TDS rate under the DTAA (often 10% or 15%) or else the Indian domestic rate applies (usually 10% + surcharge + cess).
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### 3. **TDS Return and Form**
* For TDS on payments to non-residents, **Form 27Q** is used to file TDS returns. * Form 27Q is a quarterly statement for TDS deducted on payments made to non-resident taxpayers.
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### 4. **PAN of Foreign Company**
* If the foreign company **does not have a PAN**, the **TDS rate is higher — 20% or as per section 206AA (higher of prescribed rate or 20%)**. * You should request the foreign company to obtain a PAN or **apply for a Tax Deduction Account Number (TAN)** and/or get a **lower or nil deduction certificate** from Indian tax authorities. * While filing Form 27Q, PAN of the deductee is required for proper reporting.
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### 5. **Who Bears the TDS Amount?**
* The **TDS amount is deducted from the payment made to the foreign company**. * So, if the consultancy fee is say \$100,000 and TDS rate is 10%, then:
* You pay \$90,000 to the foreign company. * You deposit \$10,000 as TDS to the Indian government. * The **foreign company can claim credit of TDS in their country** subject to DTAA provisions.
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### **Summary Table**
| Aspect | Details | | ---------------------- | ---------------------------------------- | | TDS Applicability | Yes, under Section 195 | | Applicable TDS Form | Form 27Q | | PAN of Foreign Company | Required for lower TDS rate; else 20%+ | | Rate of TDS | As per DTAA (India-Germany) or domestic | | Who bears TDS | Deducted from payment to foreign company |
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If you want, I can guide you through the process of filing Form 27Q or help draft a communication to the foreign company regarding PAN and tax compliance!
CAclubindia
