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TDS on technical fees

annapoorna (Manager) (42 Points)

28 April 2010

Dear Members,

if incase, the indian company (subsidiary of US MNC) gets technical support from its parent thru people deputed here and bills for their services as technical fees, what are the TDS implications on this? TDS on Non resident or on DTAA basis? and also on such illing for the technical services will Service tax arise for the indian company? can that service tax be taken credit or not?

can this be treated by the indian company as salary for the deputees and reimbursement of salary being paid back to the parent company? will in such case TDS will arise?

does foreign technicians rule govern this?

how about filing returns for these deputess in India?

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4 Replies

Amir (Learner) (4016 Points)
Replied 29 April 2010

Dear Annapoorna,

Ur case is though similar to the ruling sought in Danfoss Industries Private Limited - that reimbursements to foreign parent will attract TDS u/s 195 even when reimbursements do not have any profit element in them.

{Danfoss ruling can be obtained - https://aar.gov.in/}

Ur attention is also invited to this case law -

Where the assessee reimburses actual amount of salaries incurred by its foreign collaborator in deputing foreign technicians to India with the assessee, tax is deductible at source under Section 192 and not under Section 195. HCL Infosystems Ltd Vs. CIT [2002] 76 TTJ ( Delhi) 505.

But again exact facts pf the case needs to be examined before applying the above decisions.

Rate of TDS will be determinded having regards to DTAA.

One more thing - Since it is a international transaction between associated enterprises therefore transaction should be at "Arm's length price" as required by Transfer pricing rules.

Service Tax -

The nature of service should be amongst the list u/s 65(105) - Only then service tax will be payable.

Since it is a transaction betwwen associated enterprises service tax will be payable on "due basis".

Cenvat Credit cannot be utilized for making payment under "Reverse charge". However once paid the same can be taken as input credit.

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