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Budget 2015 change in TDS Rate on Royalty / Fees for Technical Services and section 195

Amendment in section 115A -
TDS rate u/s 115A has been proposed to be reduced from 25% to 10%.

Amendment in section 195 -
It is further proposed to amend the provisions of section 195 of the Act to provide that the person responsible for paying any sum, whether chargeable to tax or not, to a non-resident, not being a company, or to a foreign company, shall be required to furnish the information of the prescribed sum in such form and manner as may be prescribed. In case of non-furnishing of information or furnishing of incorrect information under sub-section (6) of section 195(6) of the Act, a penalty of Rs. 1,00,000 shall be levied.

Below is the summary for your understanding.
TDS rate on foreign payments depends on two conditions. First, whether deductee provides a valid TRC or not?  Second, whether deductee holds a valid PAN in India or not?

Below is the matrix showing applicable TDS rates depending on the availability of TRC & PAN.

TDS RATE ON FOREIGN PAYMENTS

CASE

Whether TRC is available?

Whether PAN is available?

Treatment

Possible Challenges

CASE

A

Yes

Yes

Grossing Up should be done @ DTAA Rate.


TDS should be deducted @ DTAA Rate.

NA

CASE

B

No

No

Grossing Up should be done @ applicable IT Act Rate.


TDS should be deducted @ applicable IT Act Rate or 20%, whichever is higher.

Foreign Income Tax Authority may decline to give TDS credit in excess of rate prescribed in DTAA.

CASE

C

No

Yes

Grossing Up should be done @ applicable IT Act Rate.


TDS should be deducted @ applicable IT Act Rate.

Foreign Income Tax Authority may decline to give TDS credit in excess of rate prescribed in DTAA.

CASE

D

Yes

No

Grossing Up should be done @ DTAA Rate (Bosch Ltd. ITAT Bangalore).


TDS should be deducted @ applicable IT Act Rate or 20%, whichever is higher.

Foreign Income Tax Authority may decline to give TDS credit in excess of rate prescribed in DTAA.

         

Note

IT Act Rates (as mentioned above) has to be increased by Surcharge & Education Cess.

 

DTAA rates need not to be increased by Surcharge & Education Cess.

         

Requirement of TRC for claiming Relief under DTAA

 

1)    TRC became mandatory w.e.f. 01/04/12

 

2)    Format of TRC notified w.e.f. 17/09/12

 

3)    If TRC is not in specified format then a declaration in Form 10F is also mandatory along with the required documents w.e.f. 01/08/13.

               


As per the proposed amendment by Budget 2015, in all of the above cases, person responsible for paying sum to non-resident shall furnish information to Income Tax Department in the format to be prescribed.

 

ID: 329 | Views: 15763 | Date: 03-03-2015| Posted By:

CA Mohit Jain

Comments


Excellent presentation.

Comment By: Suresh chandran | Date: 27-05-2015
Comment By: rohit gondhiya | Date: 24-07-2015
In my bill for civil work, customer deduct royalty and other charges and pay net amount. Deduction includes TDs on gross value of the bill. Should i apply tds on royalty and deposit in govt account which can be debited to customer. Please clarify. This for ay2013-14
Comment By: Dear venkat | Date: 06-10-2015

25% to 10% from which date? 1.04.15 or 01.04.16 ?

Comment By: gajanan | Date: 01-12-2015
rate of royalty for fyn 2014-15?
Comment By: rahul | Date: 25-01-2016
Comment By: rahul | Date: 25-01-2016



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