Someone Asked on This blog
Is TDS applicable to foreign consultant who renders service outside India (namely in USA). Foreign consultant is US based and does not have PE in India. From: sundar.prakash@hotmail.com
Note : On account of an Explanation given under section 9 with effect from 1/6.1976 by Finanance Act 2007 , the answer is valid only if the payments do not fall under the definition of royalty and technical fees defined under sub section vi & vii of section 9 of the I T Act.
Read this posting along with this one for proper understnding.
Note : On account of an Explanation given under section 9 with effect from 1/6.1976 by Finanance Act 2007 , the answer is valid only if the payments do not fall under the definition of royalty and technical fees defined under sub section vi & vii of section 9 of the I T Act.
Read this posting along with this one for proper understnding.
In my view , TDS is not applicable in case of payments to him .
TDS is applicable only when the INCOME is chargeable under Income Tax Act. This on account of Section 4[2] of the I T Act.So the first issue to decide whether RECEIPT by foreign consultant is taxable in India.
Since foreign consultant is Non Resident , his income received in India
or accrued in India or deemed to be received or accrued in India. If the payment is made outside India, it is certainly not received in India. As far as accrual is concerned , since the services are rendered out side India also does not bring the amount within the ambit of deeming provision as provided in Section 9 of the I T Act.
In this regard , you should note that the general rule of TDS in case of payments to Non Resident is given under Section 195 of the I T Act. However, if the services are given outside India by a Non Resident who is also paid outside the country , does not fall under the provision u/s 195 of the I T Act . There was great controversy and dispute between CBDT and CAG over the issue of TDS on payments made to NON Resident Brokers by Indian exporters .The controversy was subsequently settled and CBDT issued a circular in this regard . The crux of this circular fully applies to a case similar to a Non Resident Broker who gives services outside India and who is paid outside the country. Circular 786 of 7/2/2000 is reproduced below
Since foreign consultant is Non Resident , his income received in India
or accrued in India or deemed to be received or accrued in India. If the payment is made outside India, it is certainly not received in India. As far as accrual is concerned , since the services are rendered out side India also does not bring the amount within the ambit of deeming provision as provided in Section 9 of the I T Act.
In this regard , you should note that the general rule of TDS in case of payments to Non Resident is given under Section 195 of the I T Act. However, if the services are given outside India by a Non Resident who is also paid outside the country , does not fall under the provision u/s 195 of the I T Act . There was great controversy and dispute between CBDT and CAG over the issue of TDS on payments made to NON Resident Brokers by Indian exporters .The controversy was subsequently settled and CBDT issued a circular in this regard . The crux of this circular fully applies to a case similar to a Non Resident Broker who gives services outside India and who is paid outside the country. Circular 786 of 7/2/2000 is reproduced below
"In the Audit Report for 1997-98 (D P No 79(I.T.) The Comptroller & Auditor General (C&AG) raised an objection that the Assessing Officer in computing the Profits and Gains of Business or Profession, in a case in Mumbai charge, had wrongly allowed a deduction in respect of a payment to a non-resident where tax had not been deducted at source. The nature of the payment in this case was export commission and charges payable for services rendered outside India. In the view of C&AG the expenditure should have been disallowed in accordance with the provisions of section 40(a)(i) of the Income-tax Act, 1961. It has come to the notice of the Board that a similar view, on the same set of facts has been taken by some Assessing Officers in other charges.
The deduction of tax at source under section 195 would arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No 23 dated 23.7.1969 is drawn, where the tax ability of ‘Foreign Agents of Indian Exporters" was considered alongwith certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore held to be not taxable in India. The relevant sections, namely section 5(2) and section 9 of the Income-tax Act, 1961 not having undergone any change in this regard, the clarification in Circular No 23 shall prevails. No tax is therefore deductible under section 195 and consequently the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure. On being apprised of this position, the Comptroller & Auditor General have agreed to drop the objection referred to above."
The deduction of tax at source under section 195 would arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No 23 dated 23.7.1969 is drawn, where the tax ability of ‘Foreign Agents of Indian Exporters" was considered alongwith certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore held to be not taxable in India. The relevant sections, namely section 5(2) and section 9 of the Income-tax Act, 1961 not having undergone any change in this regard, the clarification in Circular No 23 shall prevails. No tax is therefore deductible under section 195 and consequently the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure. On being apprised of this position, the Comptroller & Auditor General have agreed to drop the objection referred to above."
That the income received by the NOn Resident Consultant is taxable in USA is also clear from comprehensive DTAA signed between USA and India .Article 15 of DTAA deals with Independent Personal services which in my view will include the services given by the foreign consultant.A rticle 15 states
" - Independent personal services - 1. Income derived by a person who is an individual or firm of individuals (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the first-mentioned State except in the following circumstances when such income may also be taxed in the other Contracting State :
(a) if such person has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or
(b) if the persons stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 90 days in the relevant taxable year.
2. The term professional services includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants."
Thus even if the NOn Resident , Individual or firm , gives services in India
and gets income in India , but stays in India for less than 90 days, the income is taxable in USA .
In your case, the Non Resident gave services outside India and never stayed in India, receives payment outside India and has no permanent base in India or any other permanent establishmentn India, income itself is not taxable in India. Therefore TDS is also not applicable.
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