TDS on Purchase of Services (Out of India)

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A business proprietor is seeking clarification on whether they must deduct Tax Deducted at Source (TDS) from payments made to companies outside India for services like servers, technical support, and domains. The discussion clarifies that TDS under Section 195 is generally applicable to payments made to Non-Resident Indians (NRIs) for technical services, with a standard rate of 10% or as per Double Taxation Avoidance Agreements (DTAA). While web hosting services are a debated area, they may not always attract TDS based on recent judgments. The recipient foreign company can claim credit for the deducted TDS in their home country as per DTAA agreements. Additionally, GST is payable on imported services under the Reverse Charge Mechanism (RCM), though this can be reclaimed as input tax credit.

Rahul Singh

Rahul Singh (Querist)
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23 October 2020 Hello everyone,

Hope you all are doing well & safe. There is an issue I'm proprietor of a business (services / NO GOODS > specifically IT). While filing ITR for FY 2019-2020, my new CA has mentioned that because last year my previous CA had done audit so TAN becomes mandatory for me which is maybe true.

But the concerning part is that he says I've to pay TDS from my pocket for the services I purchased from companies based out of India for servers, technical, domains, etc. Is this true? I mean if those individuals or companies are not making money in India, then why Goverment is asking for TDS?

As I'd no information about this Audit - TAN relation, I didn't applied for TAN & not paid. So what will be the process now?

Looking for your help, because this is very serious for me.

Thanks

CA Ankith Jain

CA Ankith Jain (Expert)
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24 October 2020 Well that's true, you need to pay. Section 195 deals with the TDS part if payments made to NRI. The services you have mentioned are part of Fees for techincal services. The tax rate is 10% or as per DTAA agreement rate with the country in which such NRI is situated. Basically, 10% is to be deducted while making payment to any NRI. Suppose, you receive a bill for 100, then u only need to pay 90 to the NRI and balance 10 to the govt. However, sometimes the NRI doesn't agree, then in such cases you need to pay 100 to the NRI and the tds will be borne by you from you pocket. For any queries you could contact caankithjain@gmail.com.

Rahul Singh

Rahul Singh (Querist)
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24 October 2020 Dear Ankith, thanks for the information. When you mention NRI that also includes companies who have no relations (No PE) with India?

For example in regards to Hosting service from a datacenter we purchase every month, do we really have to pay TDS for them because in no way that company will understand or get that TDS amount.

I read this:

- https://www.nishithdesai.com/information/news-storage/news-details/article/are-payments-for-web-hosting-services-royalties-or-business-income.html
- https://taxguru.in/income-tax/tax-withhold-server-web-hosting-charges-indousa-dtaa.html
- https://taxguru.in/income-tax/tds-not-deductible-software-purchased-mere-right-use.html

And is there any limit / basic amount for which invoice should be? So that it can even fall under TDS.

Do I have to pay any Service Tax /GST also on those services?

What you think?

CA Ankith Jain

CA Ankith Jain (Expert)
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29 October 2020 If you talking only about the web hosting services, the topic is most debated, always under the judiciary lime light.
However, if only hosting services is received then the same would be not attract TDS, considering the explanation in rhe various jufgements. There is no such limit for the TDS deduction. And for your info, in case you deduct TDS for any forign company, such company can claim benefit of TDS deducted when they file their returns as mentioned in DTAA agreements.

And yeah the GST would be payable by you under RCM as it is import of service, but anyway you can take back the credit of whatever GST you pay.

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