TDS on payment to Non resident

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Nilesh (Querist)

27 October 2010 Our co. has made provision for payment & TDS, to non resident on 31 March 2010. Paid the tax amount on 31st May 2010.
Tax is deducted @ 10.5575% (Ref Sec 195)

But now as per Sec 206AA PAN is to be furnished otherwise Tax to be deducted @20% (w.e.f. 01/04/2010).
In our case payee do not have PAN.
Provision made on 31st March i.e. before 1st April.

Now the question is
Whether TDS @ 10.5575% is correct or need to deduct @ 20%?
Plz reply at the earliest.

CA Navin Jain

CA Navin Jain (Expert)

27 October 2010 tds @10.5575%

Nilesh

Nilesh (Querist)

02 November 2010 Dear Navin,
Thanks for the reply.
Now in case of form 15CB, what should be mentioned in coloumn 'relevant clause of DTAA', because payee co is belongs to Luxembourg & DTAA with the country is effective from 1st April 2010.
Plz revert.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

27 July 2025 Here’s a clear breakdown of your query regarding TDS on payment to a non-resident (Luxembourg) and applicability of Section 206AA PAN provisions:

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### 1. **Issue on TDS rate and PAN under Sec 206AA**

* **Section 206AA (effective from 1st April 2010)** mandates that if a deductee (non-resident in your case) does **not furnish PAN**, the deductor must deduct TDS at **higher rate (20%)** or **rate in force**, whichever is higher.

* In your case:

* TDS was deducted at 10.5575% (including surcharge & cess) on **31 March 2010** (before Sec 206AA was effective).
* Payment and tax deposit were made on 31 May 2010 (after 1 April 2010).

* **Question:** Since PAN was not furnished and TDS was deducted at 10.5575%, is it valid or should it have been 20%?

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### 2. **Position as per law**

* The **key date for applicability of Section 206AA is the date of deduction** and **date of payment**.

* Since the **deduction was made on 31 March 2010**, before Sec 206AA became effective, **the old rate (10.5575%) is valid**, even if the payment was made later.

* The Supreme Court and CBDT have clarified that Sec 206AA applies only for deductions made on or after 1 April 2010.

* So **TDS @ 10.5575% is correct in your case**.

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### 3. **Regarding Form 15CB – 'Relevant clause of DTAA'**

* Since payee is from **Luxembourg**, and DTAA between India and Luxembourg became effective on 1 April 2010, you should mention the **appropriate Article of DTAA** relating to business profits or income involved.

* Usually for payments like fees or business profits, **Article 7** (Business Profits) or relevant article on fees for technical services/royalties applies.

* Check the specific nature of payment:

* For business profits, mention **Article 7**.
* For royalties or fees for technical services, mention respective articles (commonly Article 12 or 13).

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### 4. **Summary**

| Parameter | Your case detail | Remarks |
| ------------------------------ | ---------------------------------------- | ----------------------------------------- |
| TDS deducted date | 31 March 2010 | Before Sec 206AA effective date |
| PAN available? | No | But deduction date before 206AA |
| Rate of TDS | 10.5575% | Valid, no need to deduct at 20% |
| Payment date | 31 May 2010 | After 206AA effective date |
| Form 15CB relevant DTAA clause | Article applicable as per payment nature | Mention relevant article (e.g. Article 7) |

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If you want, I can help you draft or check the **Form 15CB** details with correct DTAA article references. Would you like that?

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