TDS on Commission Paid to Overseas Agent

Though earlier circulars (Circular 786) has been withdrawn but the situation still remains the same, i.e. in case the overseas agent is an independent agent with whom contract was on principal to principal basis and he does not have any Permanent Establishment in India and he peforms his functions and receives income from abroad then in that case TDS need not to be deducted as the agent's income pertains to his income from abroad. However, in other case, i.e. if agent has a Permanent Establishment in India, TDS should be deducted. Also, if agent is offering technical, managerial or consultancy services or provided personnel for the same then TDS is to be deducted.

Circular has been withdrawn to finish the misinterpretation assumed by certains corporates (Refer Morgan Stanley and Sony Entertainment Television case).

Withdrawal of the clarifications does not withdraw the Explanation 1 of Section 9 (renumbered in 2004) and the Article 7 of DTAAs signed with various countries. In fact, The last ammended section 9 in 2004 is well after the withdrawn circular 786 of 2000. Therefore rather than taking congnisance of circular, you refer to Section 9 of Act or Article 7 of DTAA read with Article 5, whichever is more beneficial tothe payee.