Nihar_Jambusaria

8/8/2019 Nihar_Jambusaria

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NIHAR JAMBUSARIA, BDO India11 August, 2010

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TDS on payments to Non-Residents & Residents


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TDS on Payments to Non-Residents & ResidentsPage 2Page 2

Contents:


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OBJECTIVE OF SECTION 195 OF THE ACT


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TDS on Payments to Non-Residents & ResidentsPage 4

Circular No. 152 dt. 27-11-74

T ax is collected at the earliest point of time

No difficulty in collection of tax at the time of assessment

T o avoid loss of revenue as the non resident may sometimes have no assets in Indiafrom which subsequent recovery can be made

Examples of nature of payments covered in the circular royalty / fess for technicalservices

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Obj ective of Section 195 of the Act


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OVERVIEW OF S.195 OF THE ACT


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Any Person responsible for paying to a non-resident, not being a company, or to aforeign 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 incash 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.

Provided further that no such deduction shall be made in respect of any dividendsreferred to in section 115-O

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Pr ovision of section 195 of the Act


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Ove r view of S.195 of the Act

S.195

S.195(1) S.195(5)S.195(4)S.195(3)S.195(2)

Scope andConditions fo r Applica b ility

Application bypaye r fo r lowe r

o r nilwithholdingce r tificate

Application bypayee fo r

lowe r o r nilwithholdingce r tificate

Validity pe r iodof the

Ce r tificate

P owe r of theCBDT to issuenotifications


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S.195(1)- SCOPE & CONDITIONS FOR APPLICABILITY


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W ho is r esponsi b le to deduct tax at sou r ce?- Any person Person as defined in section 2(31)- Includes non-residents and foreign companies

Satellite T elevision Asia Region Ltd (99 I T D 92 Mum I T AT )

Vodafone B.V. (SC)E-trade Mauritius Ltd (Mum HC)

On P ayments made to non r esidents- Includes all non residents having presence in India or not- It does not include RNOR

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S.195(1)- Scope & Conditions fo r applica b ility


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W hat a r e the payments cove r ed?- Any sum chargeable under the Act- Except Salary and dividends referred to in section 115-O- Income not taxable in India (Exempt Income)

Hyderabad Industries Ltd (188 IT

R 749 Kar HC)

W hen to deduct tax- At the time of payment or credit whichever is earlier

W hat r ate to apply?

- Lower of the two ratesRelevant rates in force; orRates under the T ax T reaty sec 2(37A)(iii) Circular No. 728 dt. 30-10-1995

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Issues:

W hethe r payment made by Br anch to H O / othe r b r anch is su bj ect to TDS?CBDT Cir cula r No 740 dt 17.4.1996, D r esdne r BankAG 108 itd 375 Cont r a r y ABN Amr oBank 97 ITD89

W hethe r tax r equi r ed to be deducted whe r e -- Payment has been made to the representative assessee or agent of a non resident- Payment made by Representative assessee or Agent of a Non Resident to a Non

resident- Payment made to agent of a Non Resident on his instructions 35 I T R 134 (Bom)-

Narsee Nagsee v/s CI T- Assessee treating himself as agent of Non Resident 200 I T R 441 (Cal) Grindlays

bank Ltd v/s. CI T

Ar e the r ates p r esc r ibed unde r the DTAA r equi r ed to be inc r eased by su r cha r ge andeducation cess?

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T DS on Payments to Non-Residents & ResidentsPage 12

W hethe r tax unde r section 195 is r equi r ed to be deducted in following situations- On void agreements Erricsson Communications Ltd (81 I T D 77)

W hat a bout payments made to non r esident pa r tne r ?

W hat a bout payments made in kind?- Kanchanganga Sea Foods Ltd (265 I T R 644)

W hat a bout payments pending FERA /FEMA app r oval?- United Breweries (211 I T R 256)

- Motor Industries Co (249 I T R 141)- Pfizer Corporation (259 I T R 391)

On ad justment against dues?- Raymond Ltd (80 TT J 120) / (86 I T D 179)



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W hat happens if a pa r ticula r sou r ce of income is cha r gea b le to tax unde r the Act,but not unde r the DTAA? Is tax r equi r ed to be deducted?

Is tax r equi r ed to be deducted f r om r eim bu r sement of expenses?



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Nature of Expense Case Laws in Favor of assessee Case laws against the assessee

Reimbursement of cost of services of a third partyengaged by Non resident

Wallace Pharmaceuticals P. Ltd (278ITR 97)

Reimbursement of allocatedcost (ie. cost sharingarrangements)

Dunlop Rubber Co (142 ITR 493) Danfoss Industries (India) Ltd (268ITR 1)

Payment for services renderedat cost

Timkin India Ltd (273 ITR 67)

Reimbursement of incidentalexpenses in addition topayments of FTS? royalty

Telco Ltd (245 ITR 823)Industries Engg. Project (P) Ltd (202ITR 1014)Clifford Chance (82 ITD 106)Mahindra and Mahindra Ltd (1 SOT896)

Cochin Refineries Ltd (222 ITR 354)SRK Consulting (230 ITR 206)Hindalco Industries Ltd (278 ITR (AT)125)

Reimbursement of livingallowance, etc of a persondeputed to India by the non-resident

BHEL (252 ITR 218)Morgenstern Werner (233 ITR 751)Goslino Mario (241 ITR 312)Hyderabad Industries Ltd (188 ITR 749)

HCL Infosystems Ltd (274 ITR 261)


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T DS on Payments to Non-Residents & ResidentsPage 16Page 16

S.195(2)- APPLICATION BY PAYER


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Deals with a scenario where payer makes an application for an order

No prescribed format for an application

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S.195(2)- Application by P aye r


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S.195(3)- APPLICATION BY PAYEE


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Payee can make an application for a certificate

Application can be made in prescribed format:o Form No. 15C in the Case of Banking Companyo Form No. 15D in any other case

Condition for issue of Certificate under section 195(3) of the Act (Rule 29B)

Validity of Certificate

Whether certificate under section 195(3) of the Act is appealable?

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S.195(3)- Application by P ayee


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Bir d eye view of Section 195 of the ActP ayment made to non

r esident

DeductTDS

Taxa b le unde r the Act

DTAA accessi b leDTAA not-accessi b le

Remittance of payment to

Non-Resident

NoTDS

No

Income not exemptunde r DTAA

Income exempt unde r DTAA

Not Taxa b le unde r theAct


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REFUND


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Refund of sum deducted- unde r diffe r ent scena r io

Sr .no

Scena r io Cr ite r ia

a Cont r act is cancelled No r emittance is made to the non-r esident

b Remittance is duly made tothe non- r esident, butcont r act is cancelled

Remitted amount is duly r efunded tothe paye r by the payee

c Cont r act cancelled afte rpa r tial execution

No r emittance is made to the non-r esident fo r the non executed pa r t

d The cont r act is cancelled

afte r pa r tial execution andr emittance r elated to non-executed pa r t is made to thenon- r esident

Amount r efunded to the paye r o r nor emittance was made but tax wasdeducted and deposited when amountwas c r edited to the account of the non-r esident


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Refund of sum deducted- unde r diffe r ent scena r io

Sr .no

Scena r io Cr ite r ia

e Amendment in law o r bynotification unde r the Act

The r e occu r s exemption of ther emitted amount f r om tax

f Or de r passed unde r section154 o r 248 o r 264 of the Act

Tax deduction lia b ility of the paye r isr educed

g Dou b le deduction of taxamount

Same amount deducted twice bymistake

h Othe r than discussed a bove G r ossing up not r equi r ed o r paymentof tax at highe r r ate unde r domestic

law while a lowe r r ate is p r esc r ibedunde r DTAA


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Compa r ison between S.195(2),195(3) & 197 of the Act

S. 195(2) S. 195(3) S. 197

P aye r applies to dete r mineapp r op r iate po r tion of sum

chargea b le to tax andlia b ility fo r withholding tax

Nil withholding- payeeapplies to the A O

Lowe r or Nil withholding-P ayee applies to the Ao

No Pr esc r ibed fo r mat fo r anapplication

Pr esc r ibed fo r mat fo r anapplication (Fo r m No. 15 Co r 15D as the case may be)

Pr esc r ibed fo r mat fo r anapplication (i.e Fo r m No. 13)

Or de r appeala b le unde r section 248 of the Act

Or de r not appeala b le- W r itpetition to High Cou r t

Or de r not appeala b le- W r itpetition to High Cou r t


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Where payment to Non resident is not taxable in his

hands, whether tax required to be deducted at 20%u/s. 206AA if PAN is not supplied by the payee?

T DS on payments to Non-Residents & Residents T DS on Payments to Non-ResidentsPage 26


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TDS ON PAYMENT TO RESIDENTS


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T DS on Payments to Non-Residents & ResidentsPa e

Pa e

TDS p r ovisions cove r ed:


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TDS ON SALARY SECTION 192


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TDS on Sala r y- Section 192

Sections Nature Rate of TDS Exemption

192 Payment of anysumchargeableunder the headSalaries.

Tax is deducted at theaverage rate of incometax computed on thebasis of rate in force for the financial year

Entertainment allowanceProfessional taxDeduction under section 80C&80CCCDeduction under section 80DMedical treatment of handicapped section 80DDBasic Slab exemption


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TDS ON CONTRACTORS & SUB-CONTRACTORS- SECTION 194-C


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TDS on Cont r acto r s & Su b -Cont r acto r s Section 194 C

Sections Natu r e Rate of TDS Exemption

194 C P ayment toResidentCont r acto r andSubcont r acto r

(inrespect of any wo r k

includingsupply of labou r fo r ca rr ying outany wo r k)

In case of Individuals ,AOP , BOI & HUFCont r acto r s,Adve r tisement &Cont r act, Su b-

cont r acto r s:1%

In case of domesticcompany o r fir mCont r acto r s,Adve r tisement &Cont r act, Su b-cont r acto r s:2%

Note: Individuals and HUF A OP,BOI r equi r ed to deduct taxonly if su bj ect to tax auditin p r eceding financial yea r.

Cont r act payment notexceeding Rs 20,000 pe r cont r act o r agg r egate Rs50,000 in a yea r (w.e.f 1 stJuly,2010- Rs 30000 single

contract o

ragg

regate Rs.75000 du r ing financial yea r )

Subcont r acto r is individualowning not mo r e than 2goods ca rr iage in business of plying, hi r ing o r leasinggoods ca rr iagesP

ayment exclusively for pe r sonal pu r poses of

Individuals and HUFCont r act fo r sale of goods


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W hethe r both o r al and w r itten cont r acts cove r ed?Circular No.93 dated 26-9-1972

W hethe r cont r acts fo r r ende r ing Pr ofessional se r vices cove r ed?

Chamber of Income Tax Consultants v CBDT [209 ITR 660 (Bom)]

W hethe r supply of p r inted Labels cove r ed?BDA Ltd V ITO(TDS) (2006) 281 ITR 99 (BOM)

Outsou r cing of fa b r ication and manufactu r ing?

CBDT

Circular No. 681, 715 and 13/2006

Reim bu r sement of actual expenses? Circular No 715 dated 08/08/1995

W hethe r payment to a r ec r uitment agency can be cove r ed by s.194 C?

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ISSUES-TDS ON CONTRACTORS & SUB-CONTRACTORS


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TDS ON COMMISSION & BROKERAGE SECTION 194-H


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TDS on Commission & Br oke r age Section 194H

Sections Natu r e Rate of TDS Exemptions

194H P ayment toResident byway of commission o r b r oke r age

10%

Individuals and HUFr equi r ed to deduct taxonly when su bj ect to tax

audit in p r ecedingfinancial yea r

Aggr egate payment du r ingthe Financial Yea r does notexceed Rs 2,500( w.e.f 1 stJuly 2010 Rs. 5000)

Tu r nove r commissionpaya b le by R BI to AgencyBanks

P ayments of b r oke r age onpu r chase and sale of secu r ities

Not being Insu r ancecommission


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Element of Agency r equi r edG ovt. Milk Scheme v ACIT (2006) 281 ITR (AT) 38 (Pune Trib.)

W hethe r discount given to licensed stamp vendo r amounts to b r oke r age?K erala State Stamp Vendors Association v Office of the Accountant G eneral (2005) 150 Taxman 30 ( K er.) / 282 ITR 7

W hethe r t r ade discount is commission / b r oke r age?National Panasonic India (P) Ltd. v DCIT [2005] 3 SOT 16 (Del. Trib.) / 94 TTJ 899

W hethe r section 194H is applica b le whe r e commission is r etained by the consigneeand not r emitted to the consigno r while r emitting the sales conside r ation?

T DS on Payments to Non-ResidentsPage 37

ISSUES-TDS ON COMMISSION & BROKERAGE


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TDS ON RENT-SECTION 194-I


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W hethe r both o r al and w r itten cont r acts cove r ed? W hethe r payment made to hotelr ooms cove r ed?

Rate cont r act ag r eements?

W hethe r tax is deducti b le on non r efunda b le deposit?CIT vs Reebok India Co (2007) (291 ITR 455) (Del)

W hethe r limit of Rs 120,000 pa applies sepa r ately fo r each co-owne r ?C ircular No 715 dated August 8, 1995

Rented space su b let fo r putting up hoa r dings?Circular 715 dated 08/08/1995

Tax c r edit in case of advance r ent- C ircular no. 5/2001 dt. March 2, 2001


ISSUES-TDS ON RENT


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TDS ON PROFESSIONAL & TECHNICAL FEES SECTION 194-J


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W hethe r r eim bu r sement of cost att r act TDS o b ligation?Circular No. 715 dt. August 8, 1995

W hethe r p r ovisions fo r cellula r mo b ile telephone o r fixed phone facility cove r ed?Skycell Communications Ltd V DCIT [251 ITR 53] (Mad)

W hethe r TDS on payment of adve r tising, b r oadcasting, telecasting cont r act is cove r edby unde r section 194J?

Commission fo r non-executive di r ecto r s- whethe r cove r ed unde r section 192 o rsection 194J o r section 194H?

W hethe r tax is deducted on the g r oss amount, including se r vice tax?CBDT Circular No. 715 dated August 8, 1995


ISSUES-TDS ON PROFESSIONAL AND TECHNICAL FEES


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T DS on Payments to Non-Residents & ResidentsPa

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T DS on Payments to Non-Residents & ResidentsPage 45Page 45Page 45

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