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Section 195 & RCM for Foreign National

11 February 2021

Hi, If a foreign National who is an Individual Service Provider has provided Professional Services from his country to Indian Private Limited Company ( He has not travelled to India for this services) then will there be an obligation to deduct TDS as per section 195? Secondly for getting benefits of DTAA, can we ask him to submit Tax Residency certificate and Form 10F and not deduct TDS? In case TRC is not provided till March 2021, then do we have to deduct @ 20% TDS or 30% TDS? What penalty is applied to us for non deduction of TDS in such case?

Secondly under GST, such services come under purview of Reverse charge mechanism right. So we have to pay GST for such services taken from Foreign Individual Service Providers. Can you please confirm

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5 Replies

CA Manivel Manickam (Chartered Accountant) (81 Points)
Replied 11 February 2021

> Yes, in your case TDS has to be deducted (if Its not covered under Sec 115/special category or exempted service)

> You have to check in IT dept / other relevent websites about the DTAA India entered with the specified nation. If yes, then obtain TRC, Form 10F (duly filled and attested) and self declaration. Form 10F and self declaration should contain assessee's PAN number and other relevant info.

>If its a normal business service (other than covered in Sec 115/special category) , then TDS has to be deducted at 30%rate

> Non deduction of TDS shall lead to a penalty of 100% of amount of TDS failed to deduct (Sec 271C)

>Not only penalty, but the expenditure shall be disallowed fully u/s 40 (a) (i) (ie, the Indian company cannot claim the expenditure and has to pay the tax)

>regarding the GST, as per section 5(3) of IGST act read with serial number (1) of Notification 10/2017dated 28-06-2017, Indian company has to pay GST under reverse charge mechanism (being a importer of service )

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Manasi Nayak (16 Points)
Replied 11 February 2021

Hi Manivel, Thanks.

However I am not sure for below: If I get TRC and form 10F from an Individual Service Provider who is providing Professional Services, then do I have to deduct TDS?

I understand absence of TRC will attract TDS. Can you please elaborate more on section 115.

second, in the absence of Pan, law states 20% TDS. So under which section 30% is applicable for foreign Individual Service providers?

CA Manivel Manickam (Chartered Accountant) (81 Points)
Replied 12 February 2021

Hi Manasi,

1. If you get Form 10F/TRC/Self declaration (by this time you will have the DTAA in your hand). If the income accrued to the Non resident is taxable in India as per the DTAA, then you have deduct TDS at the tax rate specified in the DTAA.

2.Section 115 deals with special rate (Concessional rate) of tax for Non resident/Foreign company. Few nature of business covered under 115 are Technical services/ Interest Income/ Income from GDR, bonds, debentures etc.. (For more details, kindly check on Income tax website about Sec 115, 194LA/LB/LC etc)

3.In absence of PAN, as per section 206AA, TDS should be (higher of below)

At the rate specified in the relevant provision of the Act;
At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20);
At the rate of 20%

hence in our case, as per section 195, it is 30% to NR & 40% in case of foreign companies (i.e , rate specified under provision of Sec 195 is higher)

CA Manivel Manickam (Chartered Accountant) (81 Points)
Replied 12 February 2021

Manasi,

want to add up one more thing, As per sec 90, assessee can avail the DTAA rate or sec 195 rate whichever is lower and beneficial for him at his option. So, If DTAA rate is less than 30%, then TDS shall be on the basis of DTAA

Manasi Nayak (16 Points)
Replied 12 February 2021

Hi Manivel,

Thanks, What is your opinion about below:

Regarding taxability of fees for IPS in the hands of NR in India, it is provided in almost all DTAAs that such income shall be taxable only in the country of residence of receiver and shall be taxable in India only in following 2 situations :

the service provider has a fixed base regularly available to him in India for the purposes of performing his activities or
the person stays in India for more than a minimum period ( normally 90 days) in a fiscal year.

If the case is not covered in any of the above 2 situations, the income is not taxable in India and accordingly no TDS is required u/s. 195.

My case if individual Service provider from Spain, US,UK and Portugal for Professional services and nobody has travelled to India and they do not have fixed base in India. They have delivered the service from their country only.

Regards