Applicability of tds for on-line tests

TDS 1048 views 8 replies

Sugato Lahiry

President

28 Points Joined November 2015

We are shortly going to sell on-line work-style assessment tests to our corporate clients in India, which they would use for their selecting appropriate job applicants as well as for assessing their employees.

We will buy these on-line test packages (accounts) from a USA based party and will sell the packages to our clients in India. Every account will have a predetermined number of tests (headcounts) as per the requirement of the client - this will allow the clints to conduct that many assessmnts.

The entire testing is done on line (on the test provider's server). An Indian client who has bought a test account will be given a log-in ID and password for accessing the testing page on the US based server of the American test provider. The reports will also be automatically prepared on-line and emailed to the client by the server. No human intergference is involved. Whenever one of our clients will need such testing account, we will buy it with the required headcount and provide it to the client. If the client exhausts all the test headcounts within 1 year and needs more we will buy additional numbers from the provider and provide it to the client.

The provider will invoice us on every sale based on an agreed upon rate. We will also invoice our clients as per the rates we have agreed with the client.

We think this is purely buying a product from an overseas (non resident) party and selling it in India. The only difference is that the product is delivered on-line. Each account will be accompanied with a user manual and we will provide some training in how to interpret the reports. Now our questions are:

1. Do we have to deduct TDS before making payment to the US party?

2. If not, shall we need a CA's certificate to make the payment?

3. If TDS is not applicable, will it attract any kind of import duty?

4. Do we have to pay sales tax or VAT for selling it to our client in India?

5. Or should we only pay service tax on the amount charged from our cliient for providing training?

I know these are a lot of questions, but all very important to us for which we are urgently looking for answers. We will greatly appreciate your considered opinion on this.

Thanks,

Sugato

Replies (8)

Karthik.V.Kulkarni

Chartered Accountant

594 Points Joined December 2012

Hi, the said product is a service and not goods and liable for service tax. You need form 15 cb while remitting to your foriegn company and matter of applicability of tds would be stated therin. It all depends on the terms of contract and analysis of business module. As the info given here is vague i think that giving vague opinion would do no justice. So kindly get a professional opinion regarding this matter from a CA.

Karthik.V.Kulkarni

Chartered Accountant

594 Points Joined December 2012

Here i would like to give opinion on broader perspective as the info provided is limited. 1) yes tds is liable to be deducted as it forms royalty. 2) yes you need form 15 cb to make payment 3) as it is service same will not attract import duty 4) & 5) service tax is applicable and no vat payable.

Sugato Lahiry

President

28 Points Joined November 2015

Dear Mr. Kulkarni, Thank you for your quick response to my question. You have said the information I provided is vague and limited. If you could kindly specify the additional information that would help analyze the case more clearly, I would provide the same. Also, could you please elaborate your statement: "It (applicability of TDS) all depends on the terms of contract and analysis of business module." It would help if we knew the terms and conditions under which TDS would be applicable and those under which it wouldn't. I would also be grateful if you could explain why the money that we pay for buying certain number of units of the test would count as royalty and not as cost of purchase. Finally, I missed mentioning in my original post that the US based provider (who is actually a reseller of the test) does not have any kind of establishment in India, let alone PE. Thanks again.

Sugato Lahiry

President

28 Points Joined November 2015

Dear members:

About a week ago, I had posted a question on the TDS applicability on the fund transfer to a US based firm for purchase amd reselling of on-line psychometric trsts in India.

Haven't received much response to the question, possibly because of the festive season and Diwali holidays that intervened.

I believe this is going to be a very important issue as more and more of our businesses are going to be cross border and the on-line phenomena is obliterating the traditional boundary between a product and a service.

I would urge the knowledgeable mebers of this community to consider the question (I asked in my original post) and share their views.

Thanks

Sugato Lahiry

ABHIMANYU JHAMBA

partner

146 Points Joined August 2013

Hi,

This would not fall within the definitaion of Royalty or Fee for technical services as envisaged by the Tax treaty between India and US. Further, in the absence of PE in India, it would not be taxable as business profits. Thus, one would be able to take benefit of tax treaty to hold that no tax withholding (TDS) is to be done. But one would require to examine the docuemntation/ agreements in detail.

Regards

Abhimanyu Jhamba

CA / Tax Advocate

9218999999

Sugato Lahiry

President

28 Points Joined November 2015

Thank you Mr. Jhamba for your response.

The point you made matches our interpretation too but we are seeking additional professional insights and opinions on the issue.

The documentation has not yet been finalised. What in your opinion should we be cautios about and/or guard against in drafting the agreement and documentation? What should the invoice say? How about "On-line Psychometric Assessment System for 100 tests"?

Also, do you think there could be any chances of interpreting the matter in a different light and a likelihood of a case being made out in favour of withholding tax under India-US DTAA?

Thanks & regards,

Sugato Lahiry

ABHIMANYU JHAMBA

partner

146 Points Joined August 2013

I will be able to comment only after having a look at the documentation/agreement. Share the draft and then we can take it forward.

Sugato Lahiry

President

28 Points Joined November 2015

As I said in my earlier post, documentation hasn't been done yet. Nothing so far has been drafted either. As a matter of fact, we weren't even planning an elaborate agreement. A simple exchange of emails is what we had in mind. Once we know how to describe the transaction, we could of course draft and sign a contract too.