Tds on payment to foreign
This query is : Resolved
17 April 2012
A Firm is purchasing machinery/spare parts from Italy and making payment. Whether Tds provision is applicable on this transaction?
A firm has got its machinery repaired from a a person belongs to foreign co. incorporated outside india and makes a payment under the head machinery repair. Whether Tds provisions applicable on it?
A firm has got its machinery repaired from a a person belongs to foreign co. incorporated outside india and makes a payment under the head machinery repair. Whether Tds provisions applicable on it?
17 April 2012
In purchase of Machinery you should pay without TDS, but payment for repairing of machinery you should deduct tds and then pay
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18 April 2012
Mr. Durgesh Laddha Sir,
I want to know that what rate of tds will be applicable if i got repaired my machinery and make payment to foreign country?
I want to know that what rate of tds will be applicable if i got repaired my machinery and make payment to foreign country?
27 July 2025
Here's the detailed explanation regarding **TDS on payments to foreign entities for machinery purchase and repairs**:
---
### 1. **Purchase of Machinery / Spare Parts from Foreign Supplier:**
* **TDS Applicability:**
**No TDS is applicable** on the purchase of machinery or spare parts from a foreign supplier.
Reason: This is a **capital asset purchase**, not a payment for services or royalty/fees. TDS under Section 195 of the Income Tax Act applies only on payments that are chargeable to tax under the Act (like fees for technical services, royalty, interest, etc.), and purchase of goods does **not** attract TDS.
---
### 2. **Payment for Repairing of Machinery to Foreign Entity:**
* **TDS Applicability:**
Yes, TDS **is applicable** on payments made for machinery repair services to a foreign company.
* **Reason:**
This payment is for **services rendered** (repair is a service) and is considered **fees for technical services or business income** in the hands of the foreign company, which is taxable in India under Section 195.
* **Rate of TDS:**
* Generally, **40%** is the default TDS rate on payments to foreign companies under Section 195 (plus applicable surcharge and cess) if no DTAA benefits are claimed.
* However, the **Double Taxation Avoidance Agreement (DTAA)** between India and the country of the foreign company may provide a lower withholding rate (often 10%-15%).
* The foreign company needs to provide a **Tax Residency Certificate (TRC)** and may obtain a **lower withholding certificate from Indian tax authorities** under Section 195(3) or 197.
---
### Summary Table:
| Transaction Type | TDS Applicability | Relevant Section | Typical Rate |
| --------------------------------- | ------------------- | ---------------- | ------------------ |
| Purchase of machinery/spare parts | No TDS | Not applicable | N/A |
| Payment for machinery repairs | Yes, TDS applicable | Section 195 | 40% or as per DTAA |
---
### Additional Notes:
* When making payment to foreign entities, you must comply with **Section 195** of the Income Tax Act, which mandates deduction of tax at source on any sum liable to tax in India.
* You may need to file **Form 15CA and 15CB** for remittance outside India.
* Always check the applicable **DTAA** to apply the correct withholding rate.
---
If you want, I can help you find the exact DTAA rate applicable for Italy or guide you on the compliance steps!
---
### 1. **Purchase of Machinery / Spare Parts from Foreign Supplier:**
* **TDS Applicability:**
**No TDS is applicable** on the purchase of machinery or spare parts from a foreign supplier.
Reason: This is a **capital asset purchase**, not a payment for services or royalty/fees. TDS under Section 195 of the Income Tax Act applies only on payments that are chargeable to tax under the Act (like fees for technical services, royalty, interest, etc.), and purchase of goods does **not** attract TDS.
---
### 2. **Payment for Repairing of Machinery to Foreign Entity:**
* **TDS Applicability:**
Yes, TDS **is applicable** on payments made for machinery repair services to a foreign company.
* **Reason:**
This payment is for **services rendered** (repair is a service) and is considered **fees for technical services or business income** in the hands of the foreign company, which is taxable in India under Section 195.
* **Rate of TDS:**
* Generally, **40%** is the default TDS rate on payments to foreign companies under Section 195 (plus applicable surcharge and cess) if no DTAA benefits are claimed.
* However, the **Double Taxation Avoidance Agreement (DTAA)** between India and the country of the foreign company may provide a lower withholding rate (often 10%-15%).
* The foreign company needs to provide a **Tax Residency Certificate (TRC)** and may obtain a **lower withholding certificate from Indian tax authorities** under Section 195(3) or 197.
---
### Summary Table:
| Transaction Type | TDS Applicability | Relevant Section | Typical Rate |
| --------------------------------- | ------------------- | ---------------- | ------------------ |
| Purchase of machinery/spare parts | No TDS | Not applicable | N/A |
| Payment for machinery repairs | Yes, TDS applicable | Section 195 | 40% or as per DTAA |
---
### Additional Notes:
* When making payment to foreign entities, you must comply with **Section 195** of the Income Tax Act, which mandates deduction of tax at source on any sum liable to tax in India.
* You may need to file **Form 15CA and 15CB** for remittance outside India.
* Always check the applicable **DTAA** to apply the correct withholding rate.
---
If you want, I can help you find the exact DTAA rate applicable for Italy or guide you on the compliance steps!
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