tds on foreign party u/s 195

This query is : Resolved

Omkar Patil (Querist)
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18 February 2017 Respected Sir/Ma'am, This is regards with 2013-14_27Q_Q4. We had received the notice from Income Tax Department in regards with short deduction of TDS of respsctive parties. We had deducted TDS @10% because we have TRC certificate of that parties but Income Tax says there is short deduction because we don't have PAN of that parties. So kindly give your suggestion. Waiting for reply. Thank you.

Omkar Patil

Omkar Patil (Querist)
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21 February 2017 please give solution

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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27 July 2025 This is a common issue related to **TDS deduction under Section 195 for foreign parties** when PAN is not available.

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### Key points in your situation:

* You deducted TDS @10% based on the **TRC (Tax Residency Certificate)** from the foreign party.
* Income Tax Department raised a notice saying there is **short deduction of TDS because PAN of the foreign party is not furnished**.
* You are seeking suggestions on how to handle this.

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### What the law says:

* **Section 206AA** mandates that **if PAN of the deductee (foreign party) is not furnished, TDS must be deducted at the higher of:**

* The rate specified in the relevant provision (here, Section 195),
* The rate or rates in force, or
* 20%
* So, **even if you have TRC for DTAA benefit, you must have PAN of the foreign party to deduct TDS at the lower treaty rate**.

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### Your case:

* Since PAN was not available, TDS at 10% (treaty rate) is considered short deduction.
* To rectify this:

* **Obtain PAN of the foreign party immediately**, or
* If obtaining PAN is not possible, **deduct TDS at 20% on future payments** till PAN is obtained.
* For the past short deduction period, you may need to:

* **Pay the differential TDS amount (difference between 20% and 10%) along with interest**, or
* File a response with proper explanation and request for waiver if applicable.

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### Practical suggestions:

1. **Request the foreign party to obtain a PAN** (can be applied as a Non-Resident Indian / foreign company).
2. **Deduct TDS at 20% (plus cess) if PAN not available.**
3. **Keep proper documentation of TRC and correspondence.**
4. Respond to the notice promptly, showing willingness to comply.
5. Consider consulting a tax professional to assist with the reply and possible penalty waiver.

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If you want, I can help draft a reply to the notice or provide further detailed steps for compliance. Would you like that?

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