Dear Forum
Indian company received service from non resident company and deducted tax at source @ 20% as the overseas payee does not have PAN in india.
There is DTAA between the two countries but the 20% rate was applied as the payee could not provide its TRC of its home country.
While processing Form 144 (prev 27Q), ITD has applied 20.8% tds rate and demanded the difference.
Is this correct as per law.
Please advise.
Regards
CA Dipjyoti Majumdar
Is it correct? Yes, the Income Tax Department's demand is correct as per law.
Reasoning: While the base withholding or default rate without PAN is 20% under Section 206AA, the statutory 4% Health and Education Cess (and applicable surcharges) must be added to corporate payments, bringing the total effective deduction rate to 20.8% ($20\% + 4\%$ cess). The deductor must pay the differential short-deduction amount to resolve the demand.
RMA And Associates LLP
New Delhi
CA Inter
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