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?
Non-residents making payments to non-residents are liable to TDS if the payments are chargeable to tax in India (228 ITR 487-AAR).
Exchange rate on the day on which TDS is required to be deducted has to be considered.
Payer can make a reference by simple letter on letter head/plain paper to Assessing Officer u/s. 195(2) of the Act (under Rule 10) if he opines that only portion of payment is going to be taxed and hence a request is made for determination of the amount on which tax has to be deducted.
An application u/s 195(3) can be made by the payee to the AO for no deduction of tax for receipt of sums other than dividends or interest. (Form 15D). Certificate is valid for the financial year specified therein unless cancelled by AO anytime before the expiry of the financial year.
An application u/s 197 can be made by the payee to the AO for no deduction of tax or at a lower rate of tax than rate prescribed to be deducted. (Form 13).
Certificates u/s 195(3) and u/s 197 are not appealable.
U/s 195 a non-resident is not entitled to basic/threshold exemption in respect of LTCG.
Tax has to be deducted at rates prescribed under relevant Finance Act or at the rates prescribed/specified in treaty, whichever are beneficial to the assessee. Treaty is an option to the assessee.
In case treaty rates are opted by the remittee/payee/recipient, take residency certificate of payee/receiver to determine DTAA of which country has to be applied.
Furnish the information in Form 15CA, verified in the manner prescribed. Rule 37BB.
Form No. 15CA to be then electronically uploaded on designated website
Take printout of Form No. 15CA, sign and manually file with bankers/authorized dealers of the payee along with copy of Form 15CB. Approach Bank and ask them for remittance with cheque/account debit.
Refund of TDS u/s 195 in certain circumstances – Circulars 790/20.4.2000 & 7/23.10.2007.
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.
02 August 2025
Thanks for sharing the detailed scenario! Let me break down the implications and the TDS treatment under Section 195 for your case where:
* The Indian company uses a USA company’s **currency conversion service**. * The USA company **deducts its commission** from the total foreign receipt **before remitting the balance** to the Indian company. * The Indian company **does not pay separately** for these services.
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### Key Points to Consider:
1. **Who is making the payment?**
* Section 195 requires **deduction of tax at source when a person in India makes payment to a non-resident**. * In your case, **the Indian company is not directly making any payment to the USA company**; the foreign client pays the USA company first, which deducts commission and then remits balance to the Indian company. * So, **technically, the Indian company is not making any payment to the USA company**.
2. **Is the USA company providing services to Indian company or foreign client?**
* If the USA company is **acting as an agent for the Indian company**, i.e., services rendered are for Indian company’s benefit and commission is considered as income from India, then TDS may be applicable. * If the USA company is engaged directly by the foreign client and Indian company only receives the net amount, then Indian company may **not be liable to deduct TDS under Section 195** because it’s not making the payment.
3. **Who should deduct TDS then?**
* If any TDS is to be deducted, it would be by the **foreign client (payer of commission to USA company)** or by the USA company itself based on local laws. * Indian company is **not liable to deduct TDS** on commission which it never pays.
4. **Documentation and Compliance:**
* Indian company should get a clear **break-up and agreement** on who is paying whom. * If Indian company ends up making any direct payment to USA company, TDS under Section 195 must be deducted. * If Indian company receives net amount only, no TDS is deductible by Indian company. * The USA company should handle its own tax liability as per local laws or treaty.
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### Summary:
| Situation | TDS Obligation by Indian Company? | | ------------------------------------------- | -------------------------------------------- | | Indian company **directly pays commission** | Yes, deduct TDS under Section 195 | | USA company deducts commission upfront | No, Indian company not liable to deduct TDS | | Services are for Indian company benefit | Review terms; if direct payment, TDS applies | | Services for foreign client directly | No TDS liability on Indian company |
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### Suggestion:
* Get a **clear agreement and invoice** from the USA company. * Confirm whether the commission is a charge to Indian company or foreign client. * Consult your tax advisor to see if any TDS or other compliance is necessary based on the contract.
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If you want, I can help draft an email or note to clarify this with the USA company or your tax consultant. Would you like me to do that?
CAclubindia
