Tds on incentive/commission to non resident

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Vinod

CA in Practice

445 Points Posted on 19 December 2011

Dear Sirs,

I am a new ca in practice. My doubt is regarding the certification in form 15CB (Rule 37BB).

One of my client (a hospital) has entered in to a contract with an Non Resident (foreign citizen) to canvass patients from abroad.

According to the agreement, the Non Resident agent has to canvass patients from abroad to this hospital. A fixed perecentage of the hospital bill has to be paid as incentive to this Non Resident agent.

Now, inorder to transfer the incentive to the account of the Non Resident, they need a certificate from CA in form 15CB. My doubts are:

1. The TDS rate for commission is 10% (Sec 194H) . But this agent has no PAN Card. So, is it compulsory to deduct 20% ?

2. The Non Resident agent is a citizen of Nigeria, but the amount has to be send to his account in New York. There is no DTAA with Nigeria. Shall I consider the DTAA with USA ?

3. There is no mention about the tax on commission in the DTAA with USA. Is it possible to avoid deduction saying that there is no rate as per DTAA ?

4.Disallowance under Sec 40(a)(i) is applicable to this payment ? (that section is worded as "interest, royalty,FTS or other sum").

Please advise me at the earliest.

Thanks in advance .....

vinodaca74 @ gmail.com

Replies (3)

Dipjyoti Majumdar

CA in service & CS. dipmaj@

3504 Points Posted on 20 December 2011

Vinod

According to a combined reading of section 90, 91 and 195, withholding tax rate will be that which is beneficial to the assessee. As there is no DTAA with Nigeria and DTAA rate is zero with USA on commission, ideally zero would have been the tax rate. But as the payee does not have a PAN in India, as per section 203AA the rate would be 20%.

I am not sure if DTAA with Nigeria or USA-- which one will be the guiding one. Equally, a NR is not mandatorily needed to have a PAN in india.

Please share your thoughts on this interesting issue (I have also faced this) if you receive any inputs from any other source.

Regards,

Vinod

CA in Practice

445 Points Posted on 20 December 2011

Thank you sir. Can you please comment about the word "other sum" in Sec. 40(a)(i) ? Is it cover all payments including incentive, commission etc. ?

CA Garav Gulati

Management Consultant

106 Points Posted on 20 December 2011

DTAA with Nigeria will guide the transaction further, as there is no DTAA with Nigeria in that case Income tax act rules applicable and 20% rate will be charged.

As per section 40(a)(i) the amount will disallowed the expense if remitted without deduction of income tax and amount will come under the word" other sum chargeable under the income tax" as written in section 40(a)(i).