28 August 2013
If an Indian company is using services of a USA company to get its Foreign Receipts realized into Indian Currency received from the Foreign Client in USA.
Will TDS be liable to be deducted on such commission charged by the USA based company for services provided?
In my case the Indian Co. won't be paying any money separately for services.
The USA client will pay the amount in dollars to the company that will give us service of currency conversion. The said company will deduct its commission from the total amount received and remit the Indian co. the balance amount.
29 August 2013
As per Your question, you have appointed a US company for converting foreign exchange into Indian Currency of our client situated at USA. So actually u are taking service of US co for which you are going to pay.
The second point in your query is that, your US co already deducting amount of commission from total amount of foreign currency received. So, confirm that this commission is the only payment of US Company as a hiring charges.
So as per my understanding, you will get the certificate from such US party about the total amount of commission and deduct tax, if applicable under section 195 of IT ACT.
02 August 2025
Great question! Here’s how **TDS under Section 195** works in your scenario, especially when the foreign company (USA-based) **does not have a PAN**:
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### Scenario Recap:
* Indian company uses services of a USA company for currency conversion. * USA company deducts its commission from foreign receipts before remitting balance to Indian company. * The commission is the **payment for services provided by the USA company**. * The question is: **Does Indian company have to deduct TDS under Section 195 on that commission? And what if the USA company doesn’t have a PAN?**
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### Key Points:
1. **TDS Applicability under Section 195:**
* Section 195 mandates that any person responsible for paying to a non-resident any sum chargeable to tax under the Income Tax Act must deduct tax at source. * The **commission paid to the foreign company for services rendered is taxable in India** if the income is deemed to accrue or arise in India or is received in India (Section 5 and 9 of IT Act). * So, the commission paid to the USA company is **subject to TDS under Section 195**. * The Indian company is liable to deduct TDS on the commission amount **before remitting it** or on the gross amount payable to the USA company.
2. **If the USA Company Does Not Have a PAN:**
* As per Income Tax rules, if the deductee (the USA company) **does not furnish a PAN**, TDS has to be deducted at a **higher rate of 20%** (plus applicable surcharge and cess). * Hence, Indian company must deduct TDS @ 20% on the commission amount if PAN is not available.
3. **On the Practical Side:**
* Since the USA company is deducting its commission before remitting balance to the Indian company, the Indian company should:
* Obtain the **commission amount details** from the USA company (amount charged as commission). * Deduct TDS on that commission **if it is making any payment to the USA company** or if the Indian company is deemed to be making payment (e.g., reimbursement or similar). * If the commission is directly deducted by the USA company before remittance, then the Indian company is effectively not paying that commission amount directly, so the obligation to deduct TDS could be debated. * However, the safest approach is to get clarity from tax advisors or the tax department and get the USA company’s tax residency certificate and PAN details to apply correct TDS.
4. **Obtaining a TAN and Filing TDS Returns:**
* Indian company must ensure TAN (Tax Deduction Account Number) is obtained and TDS is deposited timely. * File TDS returns under Section 195 specifying the details of deduction.
5. **DTAA Considerations:**
* India and USA have a **Double Taxation Avoidance Agreement (DTAA)**. * Check DTAA to see if the commission income is taxable only in the USA or India. * If covered under DTAA with a reduced rate (usually 10%), deduct TDS at that rate, else 30% as per domestic law. * For this, USA company must provide:
* Tax Residency Certificate (TRC), * PAN or Form 10F, * Declaration for applicability of DTAA.
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### Summary:
| Situation | Action Required | | --------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | | Indian company pays commission to USA company | Deduct TDS under Section 195 on commission amount | | USA company does not have PAN | Deduct TDS @ 20% (higher rate) | | USA company provides TRC & PAN/10F | Deduct TDS as per DTAA rate (usually 10%) | | Commission deducted before remittance | Clarify if Indian company liable to deduct TDS or not; usually Indian company responsible if payment flows through them |
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If you want, I can help you draft a checklist of documents to collect from the USA company for smooth TDS compliance under Section 195. Would that be helpful?
CAclubindia
