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sec 195 - TDS

Gokulakrishnan (Partner @ B.P.Rao&Co) (40 Points)

11 November 2009

A non resident gets the reimbursement of expenses met outside India for the services rendered by him, from a company (Service is rendered outside India). However he does not charge any fee for his service. It is only a mere REIMBURSEMENT OF ACTUAL EXPENSES MET.(say for eg. Telephone charges, car expenses)

In such a case whether the company reimbursing the expense should deduct TDS? Whether TDS u/s 195 is applicable?.

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3 Replies

Sunil (Trader) (2611 Points)
Replied 12 November 2009

If he is making a reimbursement to a person for any service/goods that is not chargeable to tax in India by virtue of Section 9 or in case it may be chargeable u/s 9 but over ridden by the DTAA then you do not have to deduct the TDS.

If the agent is being rimbursed for an expense where payee is providing you service that should have a TDS being done irrespective of whether the service provider has PE in India or not, you will have to deduct TDS. In such case it is better to pay grossed up TDS.

Income from Telephone service or Car rental is not taxable in India if provided and received abroad. If he is paying there to these providers it should be on your behalf and your expenditure during course of your business. The bill itself has to be in your name. It should not be his own expense that you are reimbursing to him. Therefore you will have to go to your CA and get form 15CB and he will analyse your transaction and arrangement with the agent and certify whether TDS is required or not. However, you are still liable to pay Service Tax on these services if used for your business in India. It is better you subscribe to calling card here in India itself with validity in his country and give him the T PIN to use it. Do not reimburse for telephone at his office that would be his expense during course of his business.

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Gurjeet (CEO) (22 Points)
Replied 19 November 2009

We are a software exports company. To provide services to our clients overseas we have servers hosted abroad for which we have to make monthly payments in USD through credit card.Do we need to deduct TDS and if yes at what rates?

Sunil (Trader) (2611 Points)
Replied 20 November 2009

NO. The income is accruing to the host abroad even though you are paying from India. No part of his income is accruing in India as he is just providing you disk space and bandwidtth in his country and that is his business from operations abroad. However, if you are paying him some fees for setting up your hosting then you have to deduct u/s 195. You will have to refer to the DTAA provisions for payment of Technical Fees.As you have already paid the fees you have to pay grossed up. Since Payee has no PAN the minimum TDS is 20%. Since you did not deduct, you will have to bear 25% on a grossed up basis. Most of these hosts do not charge you set up fee. That is free when you take hosting. This is Generally for making it a business remittance.