If an Indian individual makes payment to a non resident for professional fees rendered by him outside India (for making an ad film in India) and the payment is also made outside India. Is the payment liable for TDS? Does the withdrawal of Circular dated 23/7/1969 regarding taxability of income arising to Non residents have any relevance in the above case?
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TDS on payment to NR
Replies (2)
No. You can continue to deduct 20% TDS as usual as per Section 9 or a lower rate if specified in Article 14 of the DTAA if this is a professional or independent included servcie. However, if DTAA specifies lower rate, you still have to satisfy the new Section 206AA for compulsory PAN.
People misused the Circular by not deducting 20% and stating that foreigner has no PE in India. However both Section 9 as well as Article 14 of DTAAs with many countries give the source country the right to tax receipts like professional services and royalties IRRESPECTIVE of whether there is Permanent Establishment. Due to this misuse, CBDT withdrew these circulars. Now you have to refer to Section 9 of Act or to the DTAA, whichever is more beneficial to the assessee.
Sorry I jumbled the Article Numbers.
Refer to Article 4 for Residence. Article 5 for PE. Article 7 for Business Profit. Article 13 for Royalties and technical Services (including managerial services like dependent agents). Article 15 for Professional Service (Lawyer, Doctor etc.) In most of the DTAAs no TDS is to be done if these professional services are for personal use. Article 16 is for Salaries and Dependent Services.
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