Processing of Form 144 (prev 27Q)

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CA in service & CS. dipmaj@

2862 Points Posted on 25 July 2026

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

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Finance/Compliance Consultant

66601 Points Posted on 26 July 2026

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.

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