TDS & Service Tax on Services of a Foreign Designers

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GIRISH SHARMA (Querist)
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30 March 2010 Dear Sirs,

We have appointed a foreign designer in England to develope fresh designes for our products. He will send his designes over email, fax and/or courier. We shall make payment towards his services via normal banking channels in foreign currency. HE DOESNOT HAVE A PE or OTHER BUSINESS CONNECTION IN INDIA.

My Queries:-

1.Whether such payments attract TDS U/S 195 ?

2. If yes, then at what rate and under which head of service?
3. Is the foreign designer supposed to apply for Indian PAN ? If yes, HOW ?

4. Is it liable to service tax under the reverse charge mechanism?

Request all learned to reply at the earliest.

Thanks/Best Regards
G. Sharma

Vishnu Saboo

Vishnu Saboo (Expert)
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30 March 2010 Yes
Proffestional services
No
Yes

GIRISH SHARMA

GIRISH SHARMA (Querist)
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30 March 2010 Thank you Sir for your reply. Please note that w.e.f 01.04.2010 non quoting of PAN attracts penal TDS @ 20%. If the foreign designer doesnot have PAN then are we supposed to deduct TDS U/s 195 at 20% ?

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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28 July 2025 Here’s a detailed response to your queries regarding **TDS and Service Tax on payments to a foreign designer** (with no PE or business connection in India):

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### 1. Does payment to a foreign designer attract TDS under Section 195?

**Yes.**
Section 195 of the Income Tax Act mandates deduction of tax at source on payments made to non-residents, including fees for technical services or royalty, which broadly includes payments for design services.

Since the foreign designer is rendering services from outside India, payment made to him for services (like design) is subject to TDS under Section 195.

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### 2. At what rate and under which head of service is TDS to be deducted?

* **Nature of payment:**
Payment to a foreign designer for design services generally falls under **“Fees for Technical Services”** (FTS) or “Royalty” depending on the contract terms and nature of services.

* **Rate of TDS:**

* The standard rate under Section 195 for FTS or Royalty is **10%** (plus applicable surcharge and cess).
* However, this rate can vary depending on the **Double Taxation Avoidance Agreement (DTAA)** between India and the UK.
* You should check the DTAA to see if a reduced rate applies, and the foreign designer can provide a **Tax Residency Certificate (TRC)** to avail the benefit.

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### 3. Is the foreign designer supposed to apply for an Indian PAN? How?

* If the foreign designer wants to claim treaty benefits (DTAA) to reduce TDS or avoid penal TDS, **he must obtain an Indian PAN or a TAN (Tax Deduction Account Number)**.

* Usually, non-residents apply for PAN by submitting Form 49A along with proof of identity and address to the Indian Income Tax Department or through authorized agents.

* However, non-residents sometimes apply for **“Certificate for Lower or Nil Deduction of TDS”** under Section 197 to avoid high TDS rates.

* **If no PAN is furnished**, as per Section 206AA (effective from 1st April 2010), TDS is to be deducted at **20%** (penal rate), even if the treaty rate is lower.

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### 4. Is this liable to service tax under reverse charge mechanism?

* **No, service tax does not apply to payments made to foreign service providers outside India**, provided services are rendered outside India and payment is made outside India.

* Since the designer is outside India with no PE or business connection, **service tax under reverse charge does not apply**.

* However, you should verify the **Place of Provision of Services Rules** under service tax law to confirm that the service is an export of service, which is outside the scope of service tax.

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### Summary:

| Query | Answer |
| ----------------- | ---------------------------------------------------------------------- |
| TDS applicability | Yes, under Section 195 on payments to foreign designer |
| TDS rate | Usually 10%, subject to DTAA; 20% if no PAN provided (Sec 206AA) |
| PAN requirement | Recommended to apply for Indian PAN to avoid penal TDS |
| Service Tax | Not applicable under reverse charge if services rendered outside India |

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If you want, I can help draft a communication or guide you on **filing Form 15CA/15CB** related to this payment, which is mandatory while making foreign remittances attracting TDS under Section 195. Would you like that?

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