tax department within the specified time is not allowed to claim that amount as expenditure until that will not be deposited.
An article on TDS – Payment To Non-Resident
An article on TDS-Payment to non-Resident,deals with any Income which is accrued or arise in India or deemed to accrued or arise in India is liable to tax subjected to certain exceptions. Under the Income Tax Act, 1961, a resident in India has to pay taxes in India on their global income earned during the previous year in the relevant Assessment Year. On the other hand a non-resident who has earned income in India can’t be spared from there tax liability under this act and therefore has to pay taxes on the income which is accrued or arise in India or deemed to accrued or arise in India. There are many sections which deal with deduction of tax at source like Section 192 for salaries, 193 for interest on securities, 194A for interest other than securities, 194C for payment to contractors etc. So Section 195 also came into force to deduct tax at source from income of non-resident.
There is no Guarantee that Non-Resident will pay tax or not in the future for that Income which is accrued or arise in India and many of them have no or very less assets in India which may be totally inadequate to recover the tax dues.So it is better to secured tax at the earliest point of time so that there is no difficulty in collection of tax subsequently at the time of regular assessment. Sometime it is also difficult to recover tax because of jurisdictional and other operational difficulties. Section 195 is added in Income Tax Act, 1961 to deduct tax at source.
It applies to
The obligation to comply with this section and to make deduction there under applies to all person resident or non-resident, whether or not the non-resident person has-
(i) A residence or place of business or business connection in India
(ii) Any other presence in any manner whatever so in India.
It applies to:-
- Hindu Undivided Families
- Firms and AOPs
- Non Residents
- Foreign Companies
- Persons having exempt income in India e.g. trusts and Non-profit organisations claiming exemption under sections 10 and 11 of the Income Tax Act
- Any other juristic person irrespective of whether such person has an income chargeable to tax in India or not
“Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this act shall at the time of credit of such income to the account of payee or at the time of payment thereof in cash 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.”
Now normally 2 Question arise is the mind. They are-
Q.1 Who is non-resident? So the non-resident is defined as–
Ans:-Under Income Tax Act, non-residents in India can be of two types:-
(a) Non-resident Indian – “Non- resident Indian” means an individual, being a citizen of India or a person of Indian origin who is not a “resident”.
(b) Any other non-resident person – It will include Foreign Nationals or foreign companies.
Q.2 On What amount tax should be deducted?
Ans:-Tax is to be deducted on Gross amount. This can be clearly understood by the following example-
|1.||Rs. 8 lacs paid as Fees for Technical Services to Non-Resident (NR) and his expenses (Salary to staff and other admin expenses) were Rs. 5 lacs and Net profit to NR was Rs. 3 lacs||TDS is deductible on Rs. 8 lacs, as the Gross amount is taxable in India|
|2.||Rs. 8 lacs paid as fees for Technical Services to NR and he hire external consultant for Project at a cost of Rs. 5 lacs and Net Profit to NR was Rs. 3 lacs. NR claimed exemption for TDS on Rs. 5 lacs, as same is reimbursement of expenses.||TDS is deductible on Rs. 8 lacs, as the Gross amount is taxable in India.|
|3.||Rs. 8 lacs paid as fees for Technical Services rendered by Permanent Establishment of NR in India. In rendering such services, PE incurred expenses of Rs. 5 lacs and its Net Profit was Rs. 3 lacs||TDS is deductible on Rs. 5 lacs, if NR furnished proof of expenses incurred to payer at the time of payment or better if NR approaches to Assessing Officer u/s 195(2), to determine the income chargeable under Act, which shall be Rs. 4 lacs.|
Tax shall be deducted either at the time of actual payment of such income or at the time of its credit to the account of the payee (by whatever name called), whichever is earlier. However, in the case of interest payable by the Government or a public sector bank or public financial institution, deduction of tax shall be made only at the time of payment thereof in cash or by cheque or draft.
Note:- Where any interest or other sum as aforesaid is credited to any account, whether called “Interest Payable Account” or “Suspense Account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income t other account of the payee and the provisions of this section shall apply accordingly.
The following are some of the exempted income on which TDS has not to be deducted in case of a Non-Resident.
- Any dividend referred to in section 115-O declared, distributed or paid by a domestic company.
- Salary income paid to a Non-Resident.
What do be done before making the payment to the non-resident:-
The person referred to in section 195 shall furnish the information relating to payment of any sum in Form No. 15CA, after obtaining a certificate from a chartered accountant in Form No.15CB. The information is to be submitted in the manner as may be prescribed by the board which is as under:
- The person making the payment(remitter) will obtain the certificate from an accountant (other than employee) in Form 15CB.
- The remitter will then access the website to electronically upload the remittance details to the Department in Form 15CA (undertaking). The information to be furnished in Form 15CA is to be filed using the information contained in Form 15CB (certificate).
- The remitter will then take a print out of this filled up Form 15CA (which will bear an acknowledgement number generated by the system) and sign it. Form 15CA can be signed by the person authorised to sign the return of income of the remitter or a person so authorised by him in writing.
- The duly signed Form 15CA (undertaking) and Form 15CB (certificate), will be submitted in duplicate to the Reserve Bank of India/authorised dealer. The Reserve Bank of India/ authorised dealer will in turn forward a copy of the certificate and undertaking to the Assessing Officer concerned.
- A remitter who has obtained a certificate from the Assessing Officer regarding the rate at or amount on which the tax is to be deducted is not required to obtain a certificate from the Accountant in Form 15CB. However, he is required to furnish the information in Form 15CA (undertaking) and submit it along with a copy of certificate from the Assessing Officer as per the four points mentioned above .
The fees and charges levied by a diplomatic mission in the course of its official duties are exempt from taxes. While remitting the receipt abroad diplomatic mission will access the website electronically upload the remittance detail to the Income Tax Department in Form 15CA (undertaking); take a print out of the filled up Form 15CA which will bear an acknowledgement number generated by the system and sign it. The duly certified Form 15CA will be submitted in duplicate to the RBI/authorised dealer who will forward a copy to the assessing officer concerned. The diplomatic mission is not required to obtain a certificate in Form No. 15CB.
Where no tax is to be deducted at source:
The person entitled to receive any interest or other sum ( other than income from salary) may make an application in prescribed Form to the concerned Assessing Officer and obtain a certificate authorising the person responsible for making payment, such payment to be made without deducting tax thereon.
Where after making payment of TDS the contract has cancelled:-
Contract with Non-Resident cancelled after credit to his account and remitted amount is refunded by NR (net of tax). As Non-Resident would not claim refund of TDS, in their place deductor can claim the same TDS.
Consequences if tax is not deducted at source
If person liable to deduct tax not deducted the tax OR after deducting the tax not deposited the same with the Income Tax Department, then the payment which he made without deducting or depositing the tax will not be allowed as deduction from his total income under section 40(a) of the Income Tax Act, 1961.
So from the above it is concluded that any income which is arise in India either to Resident or to Non-Resident is chargeable to tax and TDS has to be deducted on that at the specified rate as applicable for that time. If the person who is liable to deduct TDS, not deducted or not deposited the same with the Income
Thank you for giving me opportunity to write and present myself.
Author: Ankit Jain
Myself Ankit Jain student of B.COM 2nd year of Jhanvi Degree College.I have completed my IPCC 1st group and presently persuing articleship from Laxminiwas & co.,Hyderabad.I have great interest towards Direct Tax and want to become an IRS Officer.