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Tds certificate for nr

desikan (xxx) (28 Points)

05 April 2013

HI,

We need to make payment to Indian Agent of foreign company. we hv paid to the Indian Company after deducting TDS tax at 20% as they do not have PE in India nor they have PAN No. Having deducted TDS at 20%, the vendor is asking for TDS certifciate. We have filed the ETDS Return also. But we are unable to generate TDS certificate from NSDL as they do not have PAN No. Can we issue TDS certificate manually? Pls clairfy.

Desikan.R - ACS.

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5 Replies

Khushbu Jaiswal (CA Finalist) (528 Points)
Replied 05 April 2013

In my opinion u can manually issue the TDS Certificate. Because NSDL will provide u form 16A only for them who have their PAN

CA Kumar Mukesh (CA CMA FINAL and Advance Excel Trainer) (6871 Points)
Replied 06 April 2013

Very Intereting question.

You can ask agent company to provide thier PAN details to get TDS certificate, & after getting pan of agent revise your TDS return for relevant period. then only you can issue TDS certicicate.

Note while revising TDS return please make sure that TDS DEDUCTION RATE IS 20% IN REVISED RETURN, DON'T TRY TO TAKE NORMAL RATES

CA Deepak Rathore (EXPERT) (281 Points)
Replied 06 April 2013

Implications for foreign companies / non-residents:

• The current tax rate under the domestic tax laws for royalties and fees for technical services generally is 10% (plus applicable surcharge and education cess) of the gross amount. The tax treaties also generally provide for a tax rate of 10% / 15% of the gross amount. Even in case of interest, many Indian tax treaties provide for a lower withholding tax rate of 10% / 15%. In several cases, foreign companies do not apply for a PAN in India since they earn only such passive income or they do not have business operations /Permanent Establishment in India.

• Now, with the above amendment, in the absence of PAN, notwithstanding the fact that a lower rate is provided under the ITA or the tax treaty, tax is required to be withheld @ 20% in India.

• The above provision seems to have the effect of Indian laws having an extra territorial jurisdiction whereby the foreign companies and non residents are obligated to comply with the laws of India. Questions are being raised regarding the validity of these provisions since the provision requires compliance in India overriding even the provisions of tax treaties and ignoring practical difficulties faced by foreign companies in respect of tax registration and compliance.

• In practice, it is quite unlikely, that Indian companies would consider these arguments while withholding taxes given the punitive consequences for withholding lower taxes in India.

• Credit for such excess tax withheld may not be available to the foreign company in its home country since the taxes are not withheld as per treaty provisions, Thus if foreign company does not have PAN at the time of receipt of the income, it would later have to apply for PAN and file return of income in India to claim refund of such excess tax.

• In any case, irrespective of whether a refund is due or not, technically, the Indian law requires all the foreign companies to file return of income, in case of income being earned from India – even if the applicable taxes have been paid in India. Till date, most foreign companies are practically not complying with the said provision and even the tax authorities do not have any mechanism to monitor the same. However, with the introduction of the above provision, the tax authorities can easily scrutinize the compliances by foreign companies in India based on the PAN allotted to foreign companies. Filing of return of income in India would be accompanied by host of other compliances.

• Foreign companies are required to inter alia undergo tax audit under section 44AB if turnover / gross receipts exceed INR 4 million (business) / INR 1 million (profession) and comply with the transfer pricing provisions (including maintenance of documentation and filing report from Chartered Accountant in Form 3CEB).

It is mandatory to quote PAN on return of income, all correspondence with any income tax authority and challans for any payments due to Income Tax Department. It is also compulsory to quote PAN in all documents pertaining to economic or financial transactions notified from time-to time by the Central Board of Direct Taxes.

The effort is also seen as a step by the government to increase revenue collections. The 20 percent rate on TDS will be a deterrent and compel many to obtain and furnish PAN. Otherwise, it will directly impact their cash flows in terms of higher tax payout at source.

The move of imposing penalty for not quoting PAN is aimed at strengthening the database of the revenue department and increasing tax compliance.

Naresh Khemka (Article Associate at a CA firm) (98 Points)
Replied 07 April 2013

NSDL / TRACES will not provide TDS certificate for deductees without PAN or having Invalid PAN....

You will have to ask the NR deductee to obtain a PAN if he wants TDS certificate....

Or else a mannual TDS certificate can be issued....

Srinivasan (Manager-Finance) (33 Points)
Replied 21 August 2013

Kindly clarify whether issue of TDS Certificate manually to a non-resident is valid as per the IT Act, as per CBDT Circular No.01/2012 dt 09.04.2012, the TDS certificates issued is not Valid, which does not comply instructions of the circular.

In our case, we used to deduct @ 20% of TDS and issue TDS Certificate manually, based on which he will obtain tax credit in his country according to the DTAA. Now, we could not able to generate TDS Certificate from website, even though we have paid TDS @ higher rate of 20% and also filed the Form 27Q within due date.

In this scenario, can we issue TDS Certificate manually and whether it is valid?