Payment to non resident 195 related to IT outsourcing

Our business model, we get our contract from foreign vendor which is outside India for the work outside india and based on the contract we arrange a consultant who is non resident (Foreign resident).we got our payment from foreign vendor and out of the payment from NSC we will transfer 50 to 60% to Non resident.

my doubt is right no we deduct tds at the rate 10.4% as per the definition and case laws we dont need to deduct TDS kindly clarify.

SECTION 9(1)(vii) –FEES FOR TECHNICAL SERVICES

Income by way of fees for technical services payable by a Resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of makingor earning any income from any source outside India.

Case law referrence

Aqua Omega Services (P.) Ltd v. ACIT [2013] 31 taxmann.com 179 (Chennai - Trib.)

Hi Piruthiviraj,

Your query is about TDS under Section 195 on payments made to a non-resident consultant for services rendered outside India, when your company receives payments from a foreign vendor.

Key points to consider:

Section 195 TDS on Non-Resident Payments:
Section 195 requires deduction of tax at source on any sum payable to a non-resident if it is taxable income in India.
Nature of Services & Place of Utilization:
According to Section 9(1)(vii), fees for technical services (FTS) are taxable in India only if the services are utilized in India. If services are used outside India (i.e., business or profession carried outside India), income is not taxable in India.
Your Case:
- Your company receives payment from a foreign vendor for work done outside India.
- The consultant (non-resident) is paid from these receipts.
- If the services are effectively utilized outside India, then no TDS is required under Section 195.
- This is supported by case law like Aqua Omega Services Pvt Ltd vs. ACIT.
Documentation:
- You must maintain clear evidence that services are utilized outside India.
- The contract, service delivery location, and payment flow should support this.
Practical Advice:
- If you are confident the services are used outside India and you have supporting documents, you need not deduct TDS under Section 195.
- However, if the tax authorities dispute, you might need to file a No Deduction Certificate (NDC) from the Income Tax Department to avoid liability.

Summary:

Since the services are rendered and utilized outside India, and your income is from a foreign vendor, you may not be liable to deduct TDS at 10.4% on payment to the non-resident consultant under Section 195, provided you have supporting evidence.