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TDS query.. urgent please help

anjana shah (chartered accountant) (40 Points)

03 December 2009

There are 3 Companies A, B, & C.They are associated enterprises.Company A and Company B are Indian Companies. Company C is a foreign company. Company A has given a loan to Company B. Company C has given a guarantee to Company A that incase if the company B defaults , Company C will make the default good. There is an agreement between Company B & C that Company B will pay Guarantee commission to Company C. Is this payment liable to TDS???

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10 Replies

Harshal (Article Assistant ) (182 Points)
Replied 03 December 2009

Dear Anjana...It seems dat guarantee payable by Company B to Company C falls within the foreign payments and thus DTAA has to be applied...I guess this would have to be followed...see wht others hv to say...m not damn confident...

Harshal (Article Assistant ) (182 Points)
Replied 03 December 2009

and i guess this vl b treated as business income of the company C as it doesnot fall under any article...

Shudhanshu Agrawal (Business) (2570 Points)
Replied 08 December 2009

In my opinion as payment is made to Foreign Company so it will attract Section 195 payment to non resident as guarantee commission is accrued and arised in India as per Section 9.

Shudhanshu Agrawal (Business) (2570 Points)
Replied 08 December 2009

Moreover if company will not deduct TDS on the payment then Section 40A willbe levied and expense will be disallowed.

CMA Ramesh Krishnan (Cost & Management Accountant) (71464 Points)
Replied 08 December 2009

I think it will attract TDS

Satish (CA Final Student) (479 Points)
Replied 08 December 2009

Dear Anjana,

I agree with Sudhanshu's view.

CA ESHAN CHAKRAWARTI (job) (101 Points)
Replied 21 December 2009

agree with sudhanshu

CA Bikash Biswal (Chartered Accountant) (85 Points)
Replied 22 January 2010

Am Agree with Mr. Sundhansu

First of all u say whether the company is interelated (means whether it is a subsidiary or holding company)

CA PALLAVI VOHRA (Learner) (140 Points)
Replied 23 January 2010

Hi Anjana,

The transaction is liable for TDS & the TDS payment has to be made as per Section 195. The rate applicable you have to check from the corresponding DTAA with that particular country .You can access it thru www.incometaxindia.gov.in , a direct link is given for DTAA on the home page then u can select the particular country and see the applicability.