Tds on forieng commission payment
This query is : Resolved
28 June 2012
Hi,
If we have an agent in Srilanka and we are making it commission payment then should we deduct TDS on forieng currency payment.If Yes then at what rate and as the agent is not having PAN in India then how he will saved from double taxation.
If we have an agent in Srilanka and we are making it commission payment then should we deduct TDS on forieng currency payment.If Yes then at what rate and as the agent is not having PAN in India then how he will saved from double taxation.
29 June 2012
Depending upon the nature of commission this payment may be exempt from tds. Otherwise tds shall apply @ 30%.
Same income of Agent shall be liable to tax in Srilanka also, however crdit of taxes borne in India will be allowed as a credit subject to ARTICLE 24 - Elimination of double taxation of the treaty)
Same income of Agent shall be liable to tax in Srilanka also, however crdit of taxes borne in India will be allowed as a credit subject to ARTICLE 24 - Elimination of double taxation of the treaty)
02 July 2012
Its the commission on providing sales customer but we are doing direct supply to the customer.what do u say its going to be exempted from TDS?
27 July 2025
Your question deals with **TDS on commission paid to a foreign agent (in Sri Lanka)** for sourcing customers, with direct supply by your company to those customers. Let’s break it down:
---
## 🔍 **Key Situation:**
* **Nature of Payment:** Commission for introducing/export customers.
* **Agent Location:** Sri Lanka (Non-Resident).
* **Payment:** In foreign currency.
* **Supply:** Direct from India to customer (agent not involved in actual execution of contract).
* **Agent has no PAN in India.**
---
## ✅ **Is TDS required under Section 195?**
In general, **no TDS is required** if:
1. The **foreign agent operates outside India**.
2. The **commission is for services rendered outside India** (i.e., agent is not rendering any service in India).
3. The **income is not chargeable to tax in India** under Section 9 of the Income Tax Act.
---
### ⚖️ **Legal Backing:**
* **CBDT Circular No. 786 (2000)** and several case laws (e.g., *GE India Technology*, *Toshoku Ltd*) confirm:
> *Commission paid to non-resident agents for services rendered outside India is not taxable in India and hence no TDS is required under section 195.*
* However, **if any part of the service is rendered in India**, TDS **will apply**.
---
## ❌ **But what if PAN is not available?**
If TDS **is not applicable** because the income is not taxable in India, **Section 206AA (which mandates 20% TDS in absence of PAN)** **does not apply**. (See *Shri Rajeev Tandon v. ITO* and CBDT Circulars).
So, **if there’s no tax liability in India**, **no PAN and no TDS is required**.
---
## 🔁 **Double Taxation Relief:**
If TDS *was* deducted and tax *was* paid in India:
* The Sri Lankan agent can claim **foreign tax credit (FTC)** in Sri Lanka under the **India-Sri Lanka DTAA** (Article 24).
* But this requires proper documentation (e.g., Form 16A, tax payment certificate).
---
## ✅ **Conclusion:**
| Condition | TDS Applicability |
| ------------------------------------------- | ------------------------------------ |
| Services rendered entirely outside India | ❌ No TDS |
| Agent has no presence or PE in India | ❌ No TDS |
| Income not taxable in India under Section 9 | ❌ No TDS |
| Agent has no PAN | ➖ Not relevant if no TDS is required |
> 🟩 **No TDS is required** in your case if services are rendered **completely outside India** and there’s **no business connection or PE in India**.
---
Would you like a draft declaration from the foreign agent confirming no services rendered in India? This is often useful to support your position with tax authorities.
---
## 🔍 **Key Situation:**
* **Nature of Payment:** Commission for introducing/export customers.
* **Agent Location:** Sri Lanka (Non-Resident).
* **Payment:** In foreign currency.
* **Supply:** Direct from India to customer (agent not involved in actual execution of contract).
* **Agent has no PAN in India.**
---
## ✅ **Is TDS required under Section 195?**
In general, **no TDS is required** if:
1. The **foreign agent operates outside India**.
2. The **commission is for services rendered outside India** (i.e., agent is not rendering any service in India).
3. The **income is not chargeable to tax in India** under Section 9 of the Income Tax Act.
---
### ⚖️ **Legal Backing:**
* **CBDT Circular No. 786 (2000)** and several case laws (e.g., *GE India Technology*, *Toshoku Ltd*) confirm:
> *Commission paid to non-resident agents for services rendered outside India is not taxable in India and hence no TDS is required under section 195.*
* However, **if any part of the service is rendered in India**, TDS **will apply**.
---
## ❌ **But what if PAN is not available?**
If TDS **is not applicable** because the income is not taxable in India, **Section 206AA (which mandates 20% TDS in absence of PAN)** **does not apply**. (See *Shri Rajeev Tandon v. ITO* and CBDT Circulars).
So, **if there’s no tax liability in India**, **no PAN and no TDS is required**.
---
## 🔁 **Double Taxation Relief:**
If TDS *was* deducted and tax *was* paid in India:
* The Sri Lankan agent can claim **foreign tax credit (FTC)** in Sri Lanka under the **India-Sri Lanka DTAA** (Article 24).
* But this requires proper documentation (e.g., Form 16A, tax payment certificate).
---
## ✅ **Conclusion:**
| Condition | TDS Applicability |
| ------------------------------------------- | ------------------------------------ |
| Services rendered entirely outside India | ❌ No TDS |
| Agent has no presence or PE in India | ❌ No TDS |
| Income not taxable in India under Section 9 | ❌ No TDS |
| Agent has no PAN | ➖ Not relevant if no TDS is required |
> 🟩 **No TDS is required** in your case if services are rendered **completely outside India** and there’s **no business connection or PE in India**.
---
Would you like a draft declaration from the foreign agent confirming no services rendered in India? This is often useful to support your position with tax authorities.
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