Tds on professional fees

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

15 June 2012 Can Professional fees be paid on behalf of sister company without deducting tds as the sister company is not resident in India. Is TDS applicable ?

CA Atul

CA Atul (Expert)
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15 June 2012 TDS on payments to non resident consultant. Section 195 of the I T Act states that before any payment is made to a non resident , tax should be deducted at source.However , section 195 is applicable only if the payment to non resident is taxable in India under I T Act. Therefore , the issue whether the consultancy fee paid is taxable in India. Section 5 provides that in case of non resident income deemed to arise or accrue shall be taxable under I T Act. The income deemed to arise or accrue is defined under section 9 which under Clause (vii) of subsection 1 of section 9 is specific to deeming provision in case of ‘fees for technical services” under which your payments to US company certainly falls. The said clause provides as under
9(1) The following incomes shall be deemed to accrue or arise in India.

Querist : Anonymous

Querist : Anonymous (Querist)

15 June 2012 My question was that we resident Pvt Ltd co and have paid professional fees to Prof consultant on behalf of our sister concern which is not based in India, for this payemnt of Prof fees we have not deducted tds as we are paying on behalf of the sister concern which is not liable to deducted tds as non resident status ? is it right ? Pls explain

Querist : Anonymous

Querist : Anonymous (Querist)

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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27 July 2025 Great question! Here’s the detailed explanation for your situation:

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### Scenario Recap:

* Your **Indian resident company** is paying **professional fees to a consultant**.
* This payment is **on behalf of your sister company**, which is a **non-resident (foreign company)**.
* You have **not deducted TDS** on this payment because you believe the sister company, being non-resident, is not liable for TDS.

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### Key Points to Understand:

1. **Who is the payer liable to deduct TDS?**

Under the Income Tax Act (Section 195), **any person responsible for making payment to a non-resident is liable to deduct TDS on such payment, if it is taxable in India**.

2. **Is your company the payer or just making payment as an agent?**

Even if you are paying on behalf of your sister concern, **if you are the one responsible for making the payment to the professional consultant**, you are liable to deduct TDS.

3. **Is TDS required on payment to non-resident professional/consultant?**

Yes, **TDS is applicable under Section 195** on payments to non-residents for professional or technical services if the income is taxable in India.

4. **Does the non-resident status of sister concern matter?**

* The non-resident sister company itself **does not exempt you from deducting TDS**.
* The key is whether the payment is taxable in India **and who is making the payment**.
* Your company is making the payment, so your company is liable to deduct TDS.

5. **Can you avoid TDS by stating payment is on behalf of sister concern?**

No, **the payer (your company) cannot avoid TDS liability just because the payment is on behalf of the sister company**. The payment is made by your company, so the TDS rules apply.

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### Summary:

| Situation | TDS Liability |
| ---------------------------------------------------------------------------------- | ------------------------------------------------------------------------ |
| Indian company pays professional fees directly | Indian company must deduct TDS under Sec 195 if payment taxable in India |
| Indian company pays professional fees *on behalf* of sister company (non-resident) | Indian company is still liable to deduct TDS under Sec 195 |

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### Additional Notes:

* If you want to avoid TDS, the **sister company should make the payment directly** to the consultant.
* If your company is only reimbursing the sister company (with no income element), TDS applicability may differ.
* You can seek a **No Deduction Certificate (NDC)** from the Income Tax Department or **lower deduction certificate** if applicable.
* TDS rates and applicability may also be affected by **DTAA** provisions if the consultant is a non-resident from a treaty country.

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### Final recommendation:

Your company **should have deducted TDS under Section 195** on the professional fees paid to the consultant even if payment was on behalf of your non-resident sister concern, provided the fees are taxable in India.

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If you want, I can help draft a letter or note explaining this for your internal use or assist with compliance steps. Would you like that?

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