Residential status and withholding tax rate:

Tax queries 766 views 3 replies

Sujit Talukder

service

719 Points Joined June 2007

The Article 15 of Indo-UK DTAA covers ‘Independent Personal Services’. Now, an Indian Hospital wants to appoint an UK resident doctor on year assignment basis in India. He will be present in India and do surgical works and also provide consultancy. He does not have any fixed base in India. The payment will be made in UK Pound and will be required to be remitted to UK net of taxes.

Now the query is:

Whether he will be ‘resident in India’ or continue to be resident in UK and thereby non-resident under Indian tax law given that his presence and stay in India during the previous is more than 182 days?

Reference may be drawn from Article 4 of Indo-UK DTAA where if an individual is resident of both the countries, residential status shall be determined on the basis of tie-breaker rule.

If the UK doctor remains resident in UK and thereby non-resident under Indian law, whether tax is required to be withheld from such payments?

By virtue of Article 15 – ‘Independent Personal Services’ of the DTAA, since his stay in India exceeds 90 days, India has got the right to tax the income in India. In this case what will be the rate of TDS u/s 195? (Whether he can be considered as resident for the purpose of TDS under Indian law and thus 194J will apply?)

Whether the UK doctor is required to file ITR in India w.r.t. Indian income? Whether he will be get the benefit of deduction of expenses from his Indian Professional income while offering the Indian Income to tax in India? At what rate his income will be taxed?

Your reply will be highly appreciated.

Thanks and regards

Sujit Talukder

Replies (3)

MD

AAA

122 Points Joined February 2011

1 As per the provisions of section 6(1)(a) read with section 6(6) of the Income tax Act, 1961 the Doctor will be resident but not ordinarily resident in India as he is in India in a previous year for a period or periods amounting in all to 182 days or more.

Subject to the provisions of the law of UK regarding the resident status, if the Doctor is a resident of UK as well than on reading of Article 4 of DTAA of India and UK if an individual is a resident of both Contracting States, then his status shall be determined in accordance with the rules provided therein.

Accordingly based on the facts provided, the Doctor can be understood to be a resident of UK.

2 As per Article 15 of DTAA income as is attributable to services performed in India will be taxable in India as :

(a) he is present in India for a period of 90 days or more.

In view of the above the hospital will have to deduct tax at source u/s 195 at the rate of 30% plus applicable cess.

3 As per the provisions of section 139(1)(b) the Doctor will have to file return of income in India and the income tax rate will be 30% plus applicable cess.

Expenses directly attributable to the income earning purpose should be allowable.

The Doctor can claim credit of Indian tax payable against UK tax as per Article 24 of DTAA of India and UK.

Sujit Talukder

service

719 Points Joined June 2007

My sincere thnaks to you for the reasoned reply.

In this case, the UK doctor will be treated as Resident but not ordinary resident. If this is the case, under whcih section TDS will be made - Sec 194J or 195?

Also, the DTAA says where the individual is resident in both the countries........

So if he becomes Resident but not ordianry resident, then can the Article 4 be applied since the arcle used the term 'resident' only.

Please clarify.

Regards

Sujit Taludker

MD

AAA

122 Points Joined February 2011

Tax to be deducted at source u/s 195.

Section 6 lays down the test of residence for an individual.

Section 6(1) determines whether an individual is resident or non resident.

Once, an individual is said to be resident in India than only a person is further categorized as ordinarily resident or not ordinarily resident as per the provisions of section 6(6).

Hence, if subject to the provisions of the law of UK regarding the resident status, if the Doctor is a resident of UK then he his deemed to be resident of UK only by virtue of Article 4(2)(a) of DTAA of India and UK.