tds on import of machine

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SANDEEP AGARWAL (Querist)

27 November 2009 we are importing a machine from Taiwan, section 195 says to deduct tax from payment of other sums. Also that company has a Permanent establishment in India. whether we we will deduct TDs, if yes plz let me know rate. Also let me know relevant provision and basis of arriving at rate.

CA. B.SRINIVASULU

CA. B.SRINIVASULU (Expert)

27 November 2009 Since PE is there in India the profits are subject to tax india as per Double taxation avoidance agreement and you have to withold tax, either 40% or you can work out the propable income less expenditure and you can deduct tax on the net income.

Sunil

Sunil (Expert)

27 November 2009 You will first have to determine how much income is fees for technical services in the deal. There may be some amounts for commissioning the equipment or installation. On this amount as per IT Act you will deduct 10% if agreement is approved or deemed approved (general approval under the industrial policy in force). If there is no PAN, you deduct 20% tax on this sum.

Reduce the total bill of the machines by the amount for FTS on which you calculated the TDS already. If there is any Royalty involved or License Fee for Softwares in the transaction, you have to make the same calculation and reduce it from the transaction value as above. THESE ARE IRRESPECTIVE OF WHETHER THERE IS A PE OR NOT. The reduced value represents the business income of the supplier on which his PE will calculate how much is attributable to their presence and accrued in India and discharge the tax liability. You can deduct 40% TDS + surcharge of 2.5% if applicable and issue them a certificate u/s 195 in Form 16A. The PE can claim for refund after filing returns. However, this has to be done only if it is a Branch Office PE or a Project Office PE of the foreign entity. If the entity has a DAPE who has dealt with you and contracted with you, then also you deduct TDS. The PE should submit to you the certificate u/s 197 for lower deduction.

Usually, the Indian Importer is responsible for the TDS on FTS only. The bill for import is a purchase for which you have to pay them or you will not get the Bill of Lading in Hand. Chances are you may have paid by L/C.

You do not have the responsibility of determining the existence of a fictitious DAPE in case an independent agent is deemed PE. That responsibility the department puts on the independent agent to prove he is not a DAPE. PE will file returns for Non Resident. If you have dealt with Foreigner Directly on Principal 2 principal basis and the agent has not entered into any contract with you, you deduct TDS only on the FTS portion. A wholly owned Indian subsidiary is not a PE of the Foreign Company unless it acts as a Dependent Agent of the Foreign Company.

If you would need a more elaborate explanation please give details of the PE that is in your knowledge.

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