Tds on nr
This query is : Resolved
04 May 2012
Dear Sir,
My client purchased one machine from China. The following payments will be done.
1. Machine Selling Price
2. Salary Cost of Seller's Employee who will
visit India to teach the operation of Machine.
3. Reimbursement of Traveling Fees.
In my opinion,
No TDS on purchase price.
TDS on Salary Cost as technical fee
Reimbursement of Travel Cost-Not Sure.
Please express your opinion and correct me if i am wrong.
Thanks in Advance
Regards,
Bhargav
My client purchased one machine from China. The following payments will be done.
1. Machine Selling Price
2. Salary Cost of Seller's Employee who will
visit India to teach the operation of Machine.
3. Reimbursement of Traveling Fees.
In my opinion,
No TDS on purchase price.
TDS on Salary Cost as technical fee
Reimbursement of Travel Cost-Not Sure.
Please express your opinion and correct me if i am wrong.
Thanks in Advance
Regards,
Bhargav
04 May 2012
Addition:-
Read a case in a book.
If NR sells computer systems to Indian Clients and also provides Installation and Training to Clients' staff, then both will not be termed as Technical Fees as training & installation is incidental and linked to sale of computer.
It is because of the reason of Sale of Computer.
Read a case in a book.
If NR sells computer systems to Indian Clients and also provides Installation and Training to Clients' staff, then both will not be termed as Technical Fees as training & installation is incidental and linked to sale of computer.
It is because of the reason of Sale of Computer.
04 May 2012
In relation to Travelling Expenses Reimbursement, amendment to Section 195 will make it compulsory to make an application to A O, who will determine, by general or special order, the proportionate of sum chargeable to tax. You may refer new sub-section (7) to Section 197.
05 May 2012
Amendment to section 195(7) is in context of composite contracts wherein the foreign parties charge less in thetraining fees and more in the cost of equipment. However the norms have to be notified .
Herein the foreign party needs to provide you with Tax Residency certificate"TRC" .
Anuj
femaquery@gmail.com
Herein the foreign party needs to provide you with Tax Residency certificate"TRC" .
Anuj
femaquery@gmail.com
05 May 2012
Dear Sirs,
I have quoted a case above. What is its implication?
I have quoted a case above. What is its implication?
27 July 2025
Here’s a detailed explanation based on your query regarding TDS on payments to a non-resident supplier from China for machine purchase and related services:
---
### Payment Components and TDS Applicability:
| Payment Description | TDS Applicability & Reasoning |
| --------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| **1. Machine Selling Price** | No TDS on purchase price as it is a capital asset purchase (not income). Supply of goods/machine is **not a service** and **not taxable under Income Tax Act** for TDS purpose. |
| **2. Salary Cost of Seller’s Employee (training/operation teaching)** | Likely to be treated as **Technical Fees** under Section 9(1)(vii) for royalty/fees for technical services (FTS). Hence, TDS is required under Section 195 on this component. |
| **3. Reimbursement of Travelling Fees** | This is tricky. Usually, **pure reimbursement** of expenses is not subject to TDS. However, if the travel expense is part of composite service (training, technical consultancy), then TDS may be applicable on the proportion attributable to services. Amendment to Section 195(7) requires an application to the Assessing Officer (AO) for determination of taxable portion in composite contracts. Until norms are notified, cautious approach is recommended. |
---
### Additional Points:
* **Composite Contract:** If the foreign entity charges a lump sum including cost of equipment, training, installation, travel, etc., the entire payment may be treated as a composite contract and could attract TDS. However, if the invoice separately mentions machine price and service fees, the separation helps.
* **Training & Installation Fees:** As per case law and tax department views, if training/installation is incidental and linked to the sale of goods, it may not be treated separately as FTS. But when invoiced separately, training fees generally attract TDS.
* **Tax Residency Certificate (TRC):** To avail benefits under Double Taxation Avoidance Agreement (DTAA), get a TRC from the foreign company.
* **Section 195(7) Amendment:** Requires foreign party to apply to AO for determination of taxable portion in case of composite payments (equipment + services bundled).
---
### Implication of your quoted case:
* When foreign supplier sells goods and also provides training, installation etc., the **service components may be considered incidental to sale and may not be taxable as FTS**.
* But if services are separately invoiced, **TDS is applicable on those service components**.
* Reimbursement expenses require scrutiny; **pure reimbursement** may not attract TDS, but if it’s part of composite services, then TDS may be due.
---
### Summary Table
| Component | TDS Deductible? | Section / Notes |
| ---------------------------------------------------- | ---------------------------------- | ------------------------------------------------------------------------------------ |
| Machine Purchase Price | No | Purchase of goods – not income / not subject to TDS |
| Salary cost of foreign employee (Training/Operation) | Yes | Fees for Technical Services (Section 195) |
| Travel Reimbursement | Generally No, but depends on facts | Pure reimbursement – No; Composite contract – Application to AO under Section 195(7) |
---
### Suggestion:
* Separate the invoices clearly for supply of machine and service charges.
* Deduct TDS @ appropriate rates on the technical service portion (usually 10%-15%, depending on DTAA).
* For travel reimbursement, seek clarity whether it’s pure reimbursement or part of service.
* If composite, consider applying to AO under Section 195(7) for taxability determination.
---
If you want, I can draft a sample letter to the Assessing Officer or help you prepare a calculation sheet for TDS deduction based on the breakup.
Would you like me to assist further?
---
### Payment Components and TDS Applicability:
| Payment Description | TDS Applicability & Reasoning |
| --------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| **1. Machine Selling Price** | No TDS on purchase price as it is a capital asset purchase (not income). Supply of goods/machine is **not a service** and **not taxable under Income Tax Act** for TDS purpose. |
| **2. Salary Cost of Seller’s Employee (training/operation teaching)** | Likely to be treated as **Technical Fees** under Section 9(1)(vii) for royalty/fees for technical services (FTS). Hence, TDS is required under Section 195 on this component. |
| **3. Reimbursement of Travelling Fees** | This is tricky. Usually, **pure reimbursement** of expenses is not subject to TDS. However, if the travel expense is part of composite service (training, technical consultancy), then TDS may be applicable on the proportion attributable to services. Amendment to Section 195(7) requires an application to the Assessing Officer (AO) for determination of taxable portion in composite contracts. Until norms are notified, cautious approach is recommended. |
---
### Additional Points:
* **Composite Contract:** If the foreign entity charges a lump sum including cost of equipment, training, installation, travel, etc., the entire payment may be treated as a composite contract and could attract TDS. However, if the invoice separately mentions machine price and service fees, the separation helps.
* **Training & Installation Fees:** As per case law and tax department views, if training/installation is incidental and linked to the sale of goods, it may not be treated separately as FTS. But when invoiced separately, training fees generally attract TDS.
* **Tax Residency Certificate (TRC):** To avail benefits under Double Taxation Avoidance Agreement (DTAA), get a TRC from the foreign company.
* **Section 195(7) Amendment:** Requires foreign party to apply to AO for determination of taxable portion in case of composite payments (equipment + services bundled).
---
### Implication of your quoted case:
* When foreign supplier sells goods and also provides training, installation etc., the **service components may be considered incidental to sale and may not be taxable as FTS**.
* But if services are separately invoiced, **TDS is applicable on those service components**.
* Reimbursement expenses require scrutiny; **pure reimbursement** may not attract TDS, but if it’s part of composite services, then TDS may be due.
---
### Summary Table
| Component | TDS Deductible? | Section / Notes |
| ---------------------------------------------------- | ---------------------------------- | ------------------------------------------------------------------------------------ |
| Machine Purchase Price | No | Purchase of goods – not income / not subject to TDS |
| Salary cost of foreign employee (Training/Operation) | Yes | Fees for Technical Services (Section 195) |
| Travel Reimbursement | Generally No, but depends on facts | Pure reimbursement – No; Composite contract – Application to AO under Section 195(7) |
---
### Suggestion:
* Separate the invoices clearly for supply of machine and service charges.
* Deduct TDS @ appropriate rates on the technical service portion (usually 10%-15%, depending on DTAA).
* For travel reimbursement, seek clarity whether it’s pure reimbursement or part of service.
* If composite, consider applying to AO under Section 195(7) for taxability determination.
---
If you want, I can draft a sample letter to the Assessing Officer or help you prepare a calculation sheet for TDS deduction based on the breakup.
Would you like me to assist further?
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