Tds rates on payment of royalty in foreign

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Vijay Kumar Thakur (Querist)
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20 December 2014 Dear sir
We want to make 600 Dollar in USA.We need to deduct TDS or not and what will be the rate. please give me all the details

Thanking you

Vijay Thakur

Rupesh Jain

Rupesh Jain (Expert)
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20 December 2014 you have to deduct the tds u/s 195 @ 10% if have the pan otherwise @ 20% to be deducted.

CA Kumar Mukesh

CA Kumar Mukesh (Expert)
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21 December 2014 Dear Mr. Rupesh please correct yourself Education Cess @ 3 % is also there in all cases.

Surcharge is also there there is payee exceeds the threshold limit

Rupesh Jain

Rupesh Jain (Expert)
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22 December 2014 pls read the section

Applicability of 206AA to non-residents

1. Finance Bill, 2009 had introduced a new section 206AA in the Income-tax Act, 1961 (ITA):

206AA. (1) Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:—

(i) at the rate specified in the relevant provision of this Act; or

(ii) at the rate or rates in force; or

(iii) at the rate of twenty per cent.

2. Based on above, anything contained in any other provision of ITA would not prevail over section 206AA of ITA. Hence, such section is Non-Obstante clause. Therefore, section 206AA couldn’t be override by section 90(2).

3. Further, if any person who is entitled to receive any sum on which tax is deductible under deduction at source provisions – chapter XVIIB, in such cases such person needs to disclose PAN to payer of income. If recipient fails to provide PAN, in such case tax would be deducted higher of:

(i) Rate specified in the relevant section depending on the nature of payment;

(ii) Rates in force- (rate specified in the ITA or under the tax treaty);

(iii) Rate of 20%.

4. For eg. In case of payment to UK resident by Indian company for royalty, UK resident would receive royalty from Indian company and the said royalty would be subject to deduction of tax u/s 195. Hence, UK resident need to disclose PAN u/s 206AA to Indian company. If UK resident does not have PAN in India, in such case, Indian company needs to deduct tax at higher of following rates irrespective of other provisions of act:

(i) Rate specified in the relevant section depending on the nature of payment – not applicable

(ii) Rates in force- (rate specified in the ITA – 15% or under the tax treaty – 15%);

(iii) Rate of 20%.

Hence, Indian company needs to deduct tax @20% on payment to UK resident.

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