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Tds on commision

CA CHINTAN AJMERA (Chartered Accountant) (2987 Points)

27 December 2008

Company paid 10 lakhs rs as sales commision to non resident who acted as its agent for booking order from various customer from outside india , whether company has to deduct tax at source on the payment ?

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CA RAMESH KUMAR AHUJA (CA, DISA, LLB) (5452 Points)
Replied 27 December 2008

A reply on the same as posted by Mr. Ravi Kumar, is being reproduced here:

1. In their Audit Report for 1997-98 [D.P. No. 79(I.T.)] the Comptroller & Auditor General (C & A G) Raised an objection that the Assessing Officer in computing the profits and gains of business or profession, in a case in Mumbai charge, had wrongly allowed a deduction in respect of a payment to a non-resident where tax had not been deducted at source. The nature of the payment in this case was export commission and charges payable for services rendered outside India. In the view of C & A.G. the expenditure should have been disallowed in accordance with the provisions of section 40(a)(i) of the I.T. Act, 1961. It has come to the notice of the Board that a similar view, on the same set of facts has been taken by some Assessing Officers in other charges.

2. The deduction of tax at source under section 195 would arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No. 23 dated 23rd July, 1969 is drawn where the taxability of Foreign Agents of Indian Exporters was considered along with certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore held to be not taxable in India. The relevant sections, namely section 5(2) and section 9 of the Income-tax Act, 1961 not having undergone any change in this regard, the clarification in Circular No. 23 still prevails. No tax is therefore deductible under section 195 and consequently, the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure. On being apprised of this position, the Comptroller and Auditor General have agreed to drop the objection referred to above.

Circular : No. 786, dated 7-2-2000.

(Guest)

Yes,TDS has to be deducted else whole expense shall be disallowed

Prabeer (B. COM (H) CA & CS Final) (5484 Points)
Replied 27 December 2008

Mr. CHINTAN if the income accrues or arises in India TDS need to be deducted U/S 195 (as the person is NRI) on any amount payable to the NRI unless not.