Tds deduction in case of payment to foreign company

Ishan,

In most such cases TDS is applicable under Section 195 read with the relevant Double Tax Avoidance Agreement (DTAA). Your query is incomplete as it lacks the basic facts. Please provide the following information

a) A brief descripttion of the service rendered. THis is required because some DTAA's offer a limited scope on taxation of professional fees vis-a-vis the Income Tax Act.

b) The country of tax residence of the foreign company. This is required to determine the DTAA, if any, which will be applicable to the transaction

c) Whether the foreign company has a PAN in India. THis is relevant as if there is no PAN, Section 206AA will be applicable and rate of tax may be 20% plus surcharge and cess

d) You should also advise your client to obtain the following documents

     (i) A declaration from the foreign company stating that they do not have a Permanent Establishment in India

     (ii) A document from the appropriate tax authority of the country of tax residence of the foreigner, which certifies that the said foreign company is a resident of the concerned country.

Hope this helps!

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Thank you sir for your valuable suggestion.

Further , in reply to your questions in relation to basic facts :

(a) Service redered is advertisment/PR service to be consumed in USA only.

(b) USA is the tax resident county of company providing service.

(c) No, Foreign company does not have PAN in India.

Ishan,

In my view the transaction is not taxable on account of the following reasons

1. The nature of services being advertisement  or PR do not fall under any of the heads that can be said to be deemed to be accruing or arising in india. You have mentioned that the services will be consumed outside India? Do you mean that the advertisment or PR service is for the American market? If that is the case even 9(1)vii) will not apply as although the payment is being made by a resident, it is for business carried on outside India, or for purposes of making or earning any income outside India. Hence under the Income Tax Act. 1961 you can argue that the same is not taxable.

2. Since you have mentioned that the recepient of fees is a tax resident of USA, the DTAA between India and USA will apply. Even in this case, the USA DTAA offers a limited taxation for fees for technical services. These are known as "Included Services" (Refer Article 12.4 of India-USA DTAA) as per the same, the services are taxable only if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. To “make available” technical knowledge, mere provision of service is not enough; the payer must be enabled to perform the service himselfTo make it simple, what it means is that if the foreign company has taught your client, to advertise or make conduct PR activities it can be considered taxable. If not, it is certainly not taxable. There are many judgments on what is the meaning of "make avialable", such as

a) CIT Vs De Beers India Minerals Pvt. Ltd (Karnataka HC)

b) DIT Vs Guy Carpenter & Co. Ltd (Delhi HC)

c) Anapharm Inc Vs DIT (AAR)

d) Mckinsey & Co. Inc. (Phillipines) & Ors Vs ADIT (99 TTJ 857) Mumbai ITAT

e) Raymond Ltd. vs. Dy. CIT (2003) 80 TTJ (Mumbai) 120

I am of the view that if they have done advertising PR work, and it is not through or from any PE in India, you can safely make the payment without deduction of tax.

Hope this helps

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Hello Sir,

is tds deduct on forign payment of $ 2200/- for professional services conducted one time ??

if company have PAN  then what is TDS rate...

if don't have then ...............

please assist us urgent.

My Client having to pay Rs. 15,00,000 for technical service to singapore co. which have permanent establishment in india and also have DTAA with india in which the co. shown singapore tax residency then provide me the tds rate which we have to deduct for this payment