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No TDS to be deducted if commission paid to foreign agents for rendering services abroad

ITAT Chennai Bench recently held that assessee is not liable to deduct tax at source for making payment to its foreign agents for rendering services abroad, if the foreign agent does not have a permanent establishment in India and the service rendered is not in the nature of technical service.

 Facts of the case:

The assessee, a private limited company, manufactures and exports leather garments and incurred expenditure towards commission paid to non-residents for the purpose of procuring orders abroad. The A.O disallowed the same, by observing that section 9 of the Act applied in this case as the commission amount had accrued to a non-resident/ payee principally on account of a business activity in India which required TDS deduction. The Assessing Officer further held that the certificate under section 195(2) of the Act had also not been produced. Accordingly, he disallowed/added the commission amount in assessee’s income.

 The Appellate Tribunal held that:

The Revenue’s only grievance is that the aforesaid foreign agency commission paid by the assessee to the non residents/payee attracts disallowance under section 40 (a)(i) for non deduction of TDS. It is made clear that in support of this plea, no cogent evidence has been produced. It transpires from the case file the assessee has paid foreign exchange commission to its non-resident agent who do not have any permanent establishment in India. There is no material to prove that these payment have arisen out of an agreement executed in India. Nor there is any evidence to conclude that the non-resident/payee has rendered any technical service to the assessee. The Revenue also fails to prove the payments to have been accrued, arisen or paid in India so as to make it taxable under provision of the Act.

Taking into consideration all these circumstances, CIT(A) held that the assessee was not liable to deduct TDS on above stated commission paid to its non-resident payees.

Source: Mr. Alok Patnia, founder of Taxmantra.com

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Evaluate your TDS defaults using Justification report downloaded from TRACES

After the submission of your TDS return you have the option to evaluate your return by downloading the Justification report from the TRACES website.

This report lists out the following errors that was present in the returns that was submitted:

PAN Errors – List of all PANs that which is not present in the Income Tax Department data.

Late Payments – List of all those records whose TDS payments were deposited after the due date. An interest of 1.5% per month is charged on the TDS amount for the late payment.

Short Deduction – List of all the records in which the TDS deduction rate is less than the rate as per Income Tax Act.

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Provisions related to TDS on Immovable Properties u/s. 194-IA

Provisions related to TDS payment and furnishing of TDS Certificate

1. Any sum deducted under section 194-IA shall be paid to the credit of the Central Government within a period of seven days from the end of the month in which the deduction is made.

2. TDS payment u/s. 194-IA  shall be accompanied by a challan-cum-statement in Form No.26QB.

3. Where tax deducted is to be deposited accompanied by a challan-cum-statement in Form No.26QB, the amount of tax so deducted shall be deposited to the credit of the Central Government by remitting it electronically within the time specified in sub-rule (2A) into the Reserve Bank of India or the State Bank of India or any authorised bank.

4. Every person responsible for deduction of tax under section 194-IA shall furnish the certificate of deduction of tax at source in Form No.16B to the payee within fifteen days from the due date for furnishing the challan-cum-statement in Form No.26QB.

5. Form 16B is to be generated online from the web portal.

Provisions related to TDS deduction and applicability

The Finance Act 2013 had provided that purchaser of an immovable property (other than agricultural land) worth over Rs 50 lakh is required to pay withholding tax at the rate of 1% from the consideration payable to a resident transferor.  The rate at which tax is to be cut is 1%, but it would go up to as high as 20% if the seller does not disclose his permanent account number.  This amendment is effective from 1st June, 2013.

 

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TDS Not to be Deducted on Declaration Furnished by Payee

As per Section 197, TDS shall not be deducted at source in certain cases where the payee furnishes a declaration in writing that the tax on his estimated total income of the previous year will be nil.

A payee cannot give such declaration, in case the income or the aggregate of incomes liable to TDS credited or paid in a previous year, is likely to exceed the maximum amount not chargeable to tax.

However, a resident individual payee, who is of the age of 65 years or more at any time during the previous year, may furnish a declaration that the tax on income exceeds the maximum amount not chargeable to tax.

Incomes/payments covered

A declaration as above may be made by the recipient of following incomes/payments:-

(a) In case of a resident individual:

(i) Dividends (Sec. 194).
(ii) Withdrawal from National Saving Scheme, 1987 Account 9Sec. 194EE).

(b) In case of a resident individual being a senior citizen (of 65 years or more):

(i) Interest on securities (Sec. 193).
(ii) Dividends (Sec. 194).
(iii) Interest on time-deposits with a bank and interest other than interest on securities (Sec. 194A).
(iv) Withdrawal from National Saving Scheme, 1987 Account (Sec. 194EE).
(v) Income from units of Mutual Funds or UTI (Sec. 194K).

(c) In case of any person other than a company or a firm:

(I) Interest on securities (Sec. 193).
(II) Interest on time Deposits with the bank and other interest (except interest on securities (Sec. 194A).
(III) Income from units of Mutual Funds or UTI (Sec. 194K).

Note: The facility of claiming payments of dividends and withdrawal from NSS 1987

Account under section 197A (1) is available only in the case of individuals who are resident in India. Accordingly, it is not permissible for Hindu Undivided Families and other categories of tax-payers to claim such payments without deduction of tax at source on furnishing the declaration in the prescribed from.

Declaration Form: The declaration shall be furnished in duplicate in the following form:

(I) Form No. 15G - For a resident individual (other than a senior citizen) or a personal (other than a company or a firm)

(II) Form No. 15H - For a resident individual being senior citizen (of 65 year or more)

Note: In the opinion of the Board of Editors, a declaration as above, cannot be furnished in respect of an income receivable by a minor, if the income of the minor is to be clubbed in the income of the parent under section 64(1A) and parent is liable to pay tax on his total income. The TDS on such income of the minor can, however, be claimed by the parent in his return of income.

It will be sufficient if one declaration is made in respect of the income of each year, before each person responsible for making the payment. Where payments are to be made by the same person more than once in a year, the declaration in the prescribed form may be furnished before the first payment in the year becomes due. Further, in the declaration from, particulars of only such securities, shares or, as the case may be, other deposits are to be furnished, the income from which is payable by the person to whom the declaration is furnished. For example, in a declaration furnished to Company  it is not necessary for the declarant to give particulars of the deposits for held by him in other companies.

The person responsible for making the payment shall furnish a copy of each such declaration to the Assessing Officer on or before 7th day of the month next following the month in which the declaration is furnished to him.

Tax shall not be deducted at source on payment to a contractor (including a sub-contractor) (u/s 194C) in the course of business of plying, hiring or leasing goods carriages, who furnishes his PAN to the person making such payment. [Sec.194C(6)]

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