TDS on Foreign Remittance
This query is : Resolved
31 December 2008
One of my client a private ltd is freight Forwarding Agent who takes cargo of their client from India to be sent to the warehouse of Importer factory outside India. Necessary formalities are carryout at port of India by my client and other formalities and payments are made by the agent of respective country in its currency. After completion of this job, my client is required to remit the sum which his agent has spent plus agrred amount as brokerage/Commission or share of profit.
IS TDS require to be deducted on such remitance??? if yes provide the exact provisions of I T Act
IS TDS require to be deducted on such remitance??? if yes provide the exact provisions of I T Act
01 January 2009
Agents operating outside India - Where non-resident agents operates outside india, no part of their income arises in India. Since the paymet is ususally reimbursed /remitted directly abroad it cannot be held to have been received by or on their behalf of the agent in India. So Such payments are not taxable in India and hence NO TDS - Circular No. 786 dated. Feb 2000.
07 January 2009
Mr Tilak Raj
Thanks for the circular but it says also regarding non allowability of expenditure.
so such remittance will not be allow as expenditure????????
Thanks for the circular but it says also regarding non allowability of expenditure.
so such remittance will not be allow as expenditure????????
27 July 2025
Great question! Here’s a clear explanation based on your scenario:
---
### Situation:
* Your client (an Indian private limited company) acts as a **freight forwarding agent**, coordinating cargo shipment from India to a foreign warehouse.
* The **foreign agent incurs expenses abroad**, which your client reimburses, plus pays brokerage/commission or profit share.
* You want to know if **TDS is required on these remittances**, and what the tax treatment is.
---
### 1. **Is TDS required on such remittance?**
* **As per Income Tax laws and Circular No. 786 dated February 2000**, payments made to **non-resident agents operating outside India** (where income accrues outside India) are **not taxable in India**.
* Since the foreign agent **performs services outside India**, the amount paid to them (reimbursement + commission/profit share) is **not considered income accruing in India**.
* Hence, **no TDS under Section 195 is required to be deducted on such remittance**.
---
### 2. **Taxability and Allowability of Expenditure**
* The **reimbursement part** (actual expenses paid by foreign agent) is generally **not taxable income in India**.
* However, **Income Tax Dept may disallow the expenditure claimed on such payments if it feels the payments are not genuine or not related to business**.
* Circular No. 786 mentions **non-allowability of expenditure** if payments are to non-residents not taxable in India.
* But **commission or brokerage** (if genuine and for services rendered related to your business) can be allowable as business expense if adequately documented.
---
### **Summary**
| Aspect | Position |
| ---------------------------- | -------------------------------------------------------------------------------- |
| TDS Deduction | No TDS required on payment to foreign agent outside India |
| Taxability of Agent's Income | Not taxable in India if services performed outside India |
| Allowability of Expense | Reimbursement allowable if genuine; commission needs documentation and relevance |
---
### Suggestion:
* Maintain **proper documentation**: agreement with foreign agent, invoices, proof of services rendered.
* Classify the payments clearly as **reimbursement of expenses** and **commission/brokerage**.
* Consult a tax expert for detailed analysis if payments are large or complex.
---
If you want, I can help draft an internal note or compliance checklist for your client on this matter!
---
### Situation:
* Your client (an Indian private limited company) acts as a **freight forwarding agent**, coordinating cargo shipment from India to a foreign warehouse.
* The **foreign agent incurs expenses abroad**, which your client reimburses, plus pays brokerage/commission or profit share.
* You want to know if **TDS is required on these remittances**, and what the tax treatment is.
---
### 1. **Is TDS required on such remittance?**
* **As per Income Tax laws and Circular No. 786 dated February 2000**, payments made to **non-resident agents operating outside India** (where income accrues outside India) are **not taxable in India**.
* Since the foreign agent **performs services outside India**, the amount paid to them (reimbursement + commission/profit share) is **not considered income accruing in India**.
* Hence, **no TDS under Section 195 is required to be deducted on such remittance**.
---
### 2. **Taxability and Allowability of Expenditure**
* The **reimbursement part** (actual expenses paid by foreign agent) is generally **not taxable income in India**.
* However, **Income Tax Dept may disallow the expenditure claimed on such payments if it feels the payments are not genuine or not related to business**.
* Circular No. 786 mentions **non-allowability of expenditure** if payments are to non-residents not taxable in India.
* But **commission or brokerage** (if genuine and for services rendered related to your business) can be allowable as business expense if adequately documented.
---
### **Summary**
| Aspect | Position |
| ---------------------------- | -------------------------------------------------------------------------------- |
| TDS Deduction | No TDS required on payment to foreign agent outside India |
| Taxability of Agent's Income | Not taxable in India if services performed outside India |
| Allowability of Expense | Reimbursement allowable if genuine; commission needs documentation and relevance |
---
### Suggestion:
* Maintain **proper documentation**: agreement with foreign agent, invoices, proof of services rendered.
* Classify the payments clearly as **reimbursement of expenses** and **commission/brokerage**.
* Consult a tax expert for detailed analysis if payments are large or complex.
---
If you want, I can help draft an internal note or compliance checklist for your client on this matter!
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