Student-CA final
116 Points
Joined March 2009
First go through the relevant provisions of DTAA between the two countries in order to determine where the said income should be taxed. DTAA also provide the % at which tds should be deducted.
further Section 195(1) says 'Any person responsible for paying to a non-resident, not being a company or to a foreign company, any sum chargeable under the provisions of the Act shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax at the rates in force.
In the absence of PAN of the payee, Section 206AA says that tax shall be deducted at the higher of the following rates: (a) at the rate specified in the relevant provision of the Act, or (b) at the rate or rates in force, or (c) at the rate of 20 %.
In the event of tax chargeable on income being borne by the payee, then for the purpose of Section 195, the income should be increased to such amount as would after withholding tax thereon at the rates in force, be equal to the net amount payable to the payee.