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Query - Pertain to Non Resident commission agents

We are manufacturer and exporter of Agro chemicals. We make commission payment to a marketing Agent overseas (anywhere world) and some of them required paying commission to third country/other global markets. 1. They are not our employee and don’t have a PAN card issued by Indian Income Tax Authorities. 2. They will be paid commission as a percentage of Export sales after due realization from the customers/buyers. 3. The agent neither has any PE in India nor any Business connection. Agent provides all the services outside India and received payment outside of India. As per decided in various cases and tax law that where a non-resident agent of an Indian company operates outside country and payment is remitted directly abroad, hence, merely because an entry in books of Indian Company is made, it does not mean that the non-resident has received any payment in India Our queries are:- 1. What are mandatory documents required from the agents for making such payment of commission without TDS ? 2. If TRC not available with Non-resident agent than how to determine tax residency of agent? What valid documentary evidence can be obtained? 3 If TDS deducted in India then what is the procedure of claim of refund?

Dear Rakesh,

Commission paid on export sales to Non Resindent Agents is not taxable in India, if Agents have no PE in India and no part of the services have been rendered in India. Pl see the below case law of ITAT and High Court.

Click Here

Further the requirement of TRC arises for determining the rate of TDS, when the assessee wants to claim benefit under DTAA. Pl see our following detailed Article on the same.

http://taxreply.com/article/How_to_determine_applicable_TDS_Rate_on_making_Foreign_Payments-279.html

If TRC is not available, you should ask the Agents to provide a declaration that they have No PE in India and they are not assessed in India under Income Tax.

If TDS is deducted otherwise, then Agents may claim its Rebate under DTAA in their country. However no refund can be claimed in foreign country, only rebate can be claimed.
However, Refund can be claimed by Agents in India, provided they apply for PAN Card and file income Tax Return in India. 

If you have any questions, Pl post the same.

You are also requested to post your opinion on the same.

Kind Regards
TaxReply.com

 

 

Dear Rajesh,

Your query addresses the concern of our various clients as well. Rightly so, commission is not taxable in India and thus no requirement to withheld taxes. For this purpose, we have been advised our clients to keep tab on following considerations

1. Ask for No PE declaration - we can draft a format for you

2. Maintain a copy of contract with such agent & correspondences - this is very crucial to justify that work was performed outside India

3. Since transaction is not taxable, PAN is not required. 

4. TRC is important. In case agent is an individual, you may ask for copy of tax returns submitted outside India and copy of Form 10F. This is a mere subsitute to your problem

5. In case TDS is deducted, obtain PAN, file return and claim refund. In this scenario, there is an issue that such non-resident agent does not have Indian bank account and thus refund cannot be issued to him. Considering this, we have tie up who offer facilities to recieve refund to such non-residents. We would be pleased to assist you.

Trust the above meets your understanding. You may feel free to contact me at rahul@theconsultus.com . Drop your email id so that i can share with you a brief write up on interplay between PAN and TRC. You may find this useful.

Regards, Rahul

Dear Rahul,

Thank you for sharing your views on this. It is a good contribution to the issue.

Kind Regards
TaxReply.com

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