Tds u/s 195

This query is : Resolved

Tejas Dhami (Querist)
Follow

26 June 2013 I request you to please solve the following query:

-A company wants to make a payment to VIETNAM for booking of exhibition stall in VIETNAM.

-The Vietnamese company (VC) does not have any permanent establishment in INDIA therefore nor do they have a PAN.

-VC is not providing any Tax Residency Certificate.

-VC is not ready to bear the TDS.

QUESTIONS:
1)Whether TDS u/s 195 is to be deducted?

2)If yes, then under which head? Fees for technical services?

3)If it is fees for technical services, then,
The rate of TDS as per DTAA with Vietnam is 10% for fees for technical services. But as TRC is not there, DTAA will not be applicable.
The rate of TDS u/s 115A(1)(b) is 25% + cess
As PAN is not there, as per Section 206AA, 20% + cess is to be deducted.
What is the rate applicable from above?

4) Some have argued that as the Income does not accrue or arise in India, it is not taxable and hence no DTAA is to be deducted. Is this true in this case?

MEHUL SHAH

MEHUL SHAH (Expert)
Follow

27 June 2013 Rate of TDS is 10 % in case of DTAA and 20 % + cess if no PAN. and 25 % + cess as per Income tax Act. IN case of DTAA , no surcharge and cess to be added. You can benefit the client by consultation through two ways: 1) prove that the professional charges are not in the nature of fees for included services and not in the nature of 'make available' , then no Tds to be deducted. 2) In this case, permanent establishment is not to be seen. 3) if other person is not ready to bear the TDS, then grossing up is to be done. Now there are some judgement through which we can benefit the client while grossing up. You shall find proper information on net. If you need further guidance, you can drop a mail at mehul@raseshca.com Regards CA Mehul Shah 9723459572 Consultant on International taxation

MEHUL SHAH

MEHUL SHAH (Expert)
Follow

Tejas Dhami

Tejas Dhami (Querist)
Follow

28 June 2013 thank u.

But the solution to the above and the final decision which i took, was that as the Income does not accrue or arise in India, no TDS is to be deducted. This is the final decision after going through every material and details.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
Follow

02 August 2025 Here’s a clear breakdown of your query on **TDS u/s 195** for payment to a Vietnam company for booking an exhibition stall, where:

* The Vietnamese company (VC) has **no PE in India**,
* No PAN,
* No Tax Residency Certificate (TRC),
* VC refuses to bear TDS.

---

### 1) **Is TDS u/s 195 applicable?**

* **Section 195 requires TDS on payments to non-residents for income that is “accrued or arises or is deemed to accrue or arise in India.”**
* The key question: **Does the payment for booking the exhibition stall constitute income “arising in India”?**

If the payment is **for booking a stall outside India (Vietnam)**, it is likely that the **income does not accrue or arise in India**.

**Hence, TDS under section 195 is generally NOT applicable if the income does not arise in India.**

---

### 2) **If yes, under which head? Fees for technical services?**

* If TDS applies, usually **fees for technical services (FTS)** or **business income** can be considered.
* But the **DTAA between India and Vietnam** defines the nature of income.
* Booking exhibition stall is more like **rent or service fee for space**, not technical service.
* So, classification as FTS is questionable.

---

### 3) **What is the correct TDS rate?**

If TDS applies (hypothetically):

| Scenario | Rate |
| --------------------------------- | ------------------------------ |
| DTAA applies (with TRC) | 10% (no surcharge or cess) |
| No TRC, no PAN (as per Sec 206AA) | 20% + cess |
| No TRC, PAN available | 25% + cess (as per Indian law) |

Since no PAN and no TRC, **higher TDS rates (20%+ cess) may apply if income arises in India.**

---

### 4) **Is the income taxable at all?**

* If income **does NOT accrue or arise in India**, then **it is not taxable in India**.
* Consequently, **no TDS under Section 195** is required.
* This is often the practical and correct conclusion in such cases.

---

### 5) **What if the Vietnamese company refuses to bear TDS?**

* If TDS applies, **the payer is responsible for deducting TDS and depositing it**.
* If the payee refuses to bear TDS, the payer can **“gross up”** the payment amount so that after deducting TDS, the payee receives the agreed net amount.
* There are judgments supporting grossing up where payee refuses to bear TDS.

---

### **Summary & Practical Advice:**

| Point | Decision / Explanation |
| ------------------------------------------------------------- | ------------------------------------------------- |
| Does payment for exhibition stall constitute income in India? | Generally **No** if stall is outside India |
| Is TDS under Section 195 required? | No, if income does not accrue/arise in India |
| What if TDS is deducted? | Deduct as per applicable rates (10%, 20%, or 25%) |
| What if no PAN or TRC provided? | Higher TDS rate of 20% + cess applies |
| Payee refuses to bear TDS? | Gross up the payment if TDS applies |

---

### **Final Note:**

You concluded correctly — after detailed analysis and review of the facts and laws, **no TDS under Section 195 is required because income does not accrue or arise in India**.

---

If you want, I can help draft an email or legal note summarizing this for your internal records or communication with the Vietnamese company. Would you like that?

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now