TDS payment to Foreign Consultan u/s 195
TDS applicability to foreign consultant who renders service outside India and does not have PE in India.
As per the recent amendment in section 9 of Income tax act 1961proposed by finance bill 2010, as passed by Loksabha on 29th April 2010;all payments made to a nonresident outside India shall be taxable in India regardless of the fact that whether the services have been rendered in India or not.
“Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the nonresident, whether or not,—
(i) the non-resident has a residence or place of business or business connection in India; or
(ii) the non-resident has rendered services in India.”.
The payment being made by the company to the International Law Firm Squarely falls within the ambit of above amendment since it is a payment for technical services as covered in explanation 2 to clause (vii) of sub-section (1) of section 9 of Income tax act.
The relevant extract of section 9 which talks about ‘Income deemed to accrue or arise in India’ is as follows:
“Explanation -For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".
2. If the income is taxable as per the Indian Law, then the Non resident can opt for the provisions of the DTAA for extinction or marginalizing the liability so created
The international law firm is required to file its Income tax return In India
It is required for the Indian company to take a certificate in form 15CB from a certified chartered accountant certifying the rates at which TDS on such payments has been deducted. Subsequently, it will have to upload a form 15CA online. The duly signed Form 15CA (undertaking) and Form 15CB (certificate), will be submitted in duplicate to the Reserve Bank of India / authorized dealer. The Reserve Bank of India / authorized dealer will in turn forward a copy the certificate and undertaking to the Assessing Officer concerned
Rate at which TDS needs to be deducted
Section 195 of income tax act talks about the tax to be deducted at source on payments being made to non residents. It reads as follows:
“Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" ) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force”
3. The rates are to be decided in accordance with the provisions of DTAA. The rates as per Income tax act or as per DTAA; whichever is beneficial to the assessee shall prevail.
Since the International law firm do not have a fixed base regularly available to it In India, nor its period of stay in India exceeds 90 days, there is no requirement to deduct TDS from payments made to it.
The International law firm is not required to apply for PAN in India as per section 206AA
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