TDS on Export Commission

All the circulars were withdrawn due to misuse by wrong interpretations of Business Connection and Agents for non residents operating through agents. For export commission first examine the agreement between your client and agent and see what work he is doing for your customer. Is it a simple brokerage / commission for the export of goods or is it a managerial or technical service rendered abroad. You have to examine this agreement to ascertain the basis of payment of commission.

Your next step is to categorise what the sum is being paid for. If it is a managerial or technical service, then irrespective of whether the foreigner has a permanent establishment in India or not you have to deduct TDS @ 20% as per Section 9 of IT Act (25% if you are bearing the tax). If there is a DTAA you can give the benefit of a lower rate if mentioned in Article 14 of DTAA.

If it is simply commission on export of goods and agent has no PE in India and moreover you remit money to him abroad and do not pay him anything in India then section 9 states as follows:-

For the purposes of this clause

(a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India ;

(b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export ;

Thereofre it should be very clearly mentioned in the agreement that the non resident has no branch or agent or employees in India. Then u/s 9 itself there is no TDS. You can also refer to the DTAA with the other contracting state (country). Article 5 Mentions the conditions of having PE and article 7 mentions how the business income has to be taxed. If there is no PE in India then the business income can be taxed only in the country where foreigner is having residence. As a CA you will have to refer to whatever is most beneficial to assessee (Section 9 or DTAA) and accordingly determine the tax payable. If it is nil after satisfying the above conditions, you mention nil.

If non resident does have PE or operates through a fixed base in India. you will have to calculate the income deemed to accrue in India and deduuct highest marginal rate (30%) if individual or the rate for foreign companies if Company. However, if activities are restricted to purchase of goods for export from India, both Section 9 and the Article 7 of DTAAs state that no income will be deemed to accrue in India.

You must also ask exporter to furnish the EP or Exporter Copy of EDI Shipping Bill or GR Form and check that the exporter has declared the quantum of commission to be remitted while filing export documents with customs. This is a RBI requirement.

Once you are classify the income and are satisfied whether you have to deduct nil or 20% (It may be 10-15% for professional services in some DTAAs) you can issue form 15CB refering to the appropriate sections or DTAA while applying nil rate or other rate). If the income is deemed to accrue in India for business you are deducting highest rate. Therefore no problem. Even if you deduct 20% for technical or managerial service as per article 14 of DTAA or Section 9 of IT Act then no problem. However if DTAA allows you to deduct at rate lower than 20%, you still have to satisfy the New Section 206AA for compulsory PAN Number. Even if you are elegible to lower rate than 20% if income is taxable in India, chances are non resident will have no PAN and you have to deduct 20%.

Withdrawal of the circulars by CBDT has not withdrawn the applicable clauses in Section 9 or the DTAAs.