Tds 195 final

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Tds 195 final

  1. 1. www.simpletaxindia.net
  2. 2. Section Analysis- Importance of Section 195- Objective of Section 195- Chargeability of Section 195- Unique Feature of Section 195- Overview of Section 195Tax Rates/ 206AAExchange RatesLatest Amendments in Section 195IssuesConsequences of Non- Compliance of TDS ?www.simpletaxindia.net
  3. 3.  More and More Cross Border Payments Increased revenue’s attention like form 15CAand 15CB Professional Diligence for CA’s Default consequences for payer: Demand u/s Section 201; Interest of 201(1A) Penalty u/s Section 221 &/or 271C Prosecution u/s Section 276B Disallowance of expense u/s Section 40(a)(i)www.simpletaxindia.net
  4. 4. Circular No. 152 dt. 27-11-1974 Tax is collected at the earliest point of time. No difficulty in collection of tax at the time of assessment. To avoid loss of revenue as the non residents may sometimeshave no assets in India from which subsequent recovery can bemade. Example of nature of payment covered in the circular – royalty/fees for technical services.www.simpletaxindia.net
  5. 5. Scope of Total Income of NR: Section 5 :-- Income received or deemed to be received in India- Income accrues or arises or deemed to accrue or arise in IndiaCharging Section: Section 4 :- Section 4 gives the authorityto the government to charge Income-taxApplicability: Sec 1:- The Act applies to the whole of Indiaand became effective from 1 April 1962Sec 195 :- Any person responsible for paying to a nonresident…any interest or any other sum chargeable under theprovisions of this Act shall…deduct income-tax thereon…www.simpletaxindia.net
  6. 6.  Unlike personal payments exempted in section 194Cetc; no exclusion for the same in section 195 (allpayments covered excl. salaries provided chargeabilitythere) e.g. payment to foreign architect for residentialhouse construction etc Unlike threshold criteria specified in section 194Cetc, no basic limit in section 195 even Re 1 payment iscovered Unlike other provisions in Chapter XVII (TDSprovisions), section 195 uses a special phrase“chargeable to tax under the Act” All payers covered irrespective of legal character HUF,Individual etc Multi-dimensional as involves understanding ofDTAA/Treatywww.simpletaxindia.net
  7. 7. Section 195(3)Application by Payee for lower or nil withholding certificateSection 195(2)Application by Payer for lower or nil withholding certificateSection 195(1)Scope & Condition for Applicabilitywww.simpletaxindia.net
  8. 8. Section 195(7)Authorize a Board to notify a Class of persons or casesSection 195(6) Finance Act 2008Rule 37BB & Form 15CA and Form 15CBSection 195(5)Power of CBDT to issue notificationSection 195(4)Validity of Certificatewww.simpletaxindia.net
  9. 9. Who is responsible to deduct TDS -Any person- as defined u/s 2(31)- Includes virtually everyonePayment made to non resident - Includes all non- resident havingpresence in India or not- It does not include RNORDetermine-Status of NR - Under sec 6-In case of dual residence and iftie breaker - DTAA is appliedPayment covered -Any sum chargeable under theAct- Except Salary and dividendreferred u/s 115OAt what time TDS has to bedeductedAt the time of credit or paymentwhichever is earlier.Rate of TDS Relevant rate in forcewww.simpletaxindia.net
  10. 10.  Application by the Payer to the AO for determining (bygeneral or special order) appropriate portion of such sumchargeable, upon such determination, tax shall be deductedunder sub-section (1) only on that proportion of the sum whichis so chargeable. Alternate Mechanism: CA certificate*www.simpletaxindia.net
  11. 11.  Payee can make an application for a certificate. Application can be made in prescribed format :-- form No. 15C in case of banking company- form No. 15D in any other cases Condition for issue of certificate u/s 195(3) ofthe Act (Rule 29B).www.simpletaxindia.net
  12. 12.  A certificate granted under sub-section(3) shallremain in force till the expiry of period specifiedtherein or, if it is cancelled by the AssessingOfficer before the expiry of such period, till suchcancellation.www.simpletaxindia.net
  13. 13.  The Board may make rules specifying the casesin which, and the circumstances under which, anapplication may be made for the grant of acertificate under sub section (3) with thespecified conditions.www.simpletaxindia.net
  14. 14.  Requires the person making payment to NR to furnish theinformation relating to paymentSection 195(6) introduced by Finance Act 2008 (w.e.f. 1/4/2008)Furnishing of information - Rule 37BB (w.e.f. 1 July 2009)Furnish information to the tax department - Form 15CAObtain CA certificate before making payment to NR - Form15CBwww.simpletaxindia.net
  15. 15. Applicable w.e.f 1/07/2012 Notwithstanding anythingcontained in sub-section (1) and sub-section(2), the boardmay, by notification in the Official Gazettee, specify aclass of persons or cases, where the person responsiblefor paying to a non-resident, not being a company, or to aforeign company, any sum whether or not chargeableunder the provisions of this Act, shall make an applicationto the Assessing Officer to determine, by general orspecial order, the appropriate proportion of sumchargeable, and upon such determination, tax shall bededucted under sub-section(1) on that proportion of thesum which is so chargeable.www.simpletaxindia.net
  16. 16. SURCHARGE &EDUCATION CESSIn case of Non- domestic Companywhere payment not exceed 1Crores- Surcharge- Nil & EducationCess @ 3%In case of Non- domestic Companywhere payment exceed 1 Crores-Surcharge- 2% & Education Cess @ 3%www.simpletaxindia.net
  17. 17. (1) Notwithstanding anything contained in any other provisions ofthis Act, any person entitled to receive any sum or income oramount, on which tax is deductible under Chapter XVIIB(hereafter referred to as deductee) shall furnish his PermanentAccount Number to the person responsible for deducting such tax(hereafter referred to as deductor), failing which tax shall bededucted at the higher of the following rates, namely:—(i) at the rate specified in the relevant provision of thisAct; or(ii) at the rate or rates in force; or(iii) at the rate of 20% (twenty percent).(2) Further, PAN to be quoted on all correspondences, bills,vouchers, etc. between payer and payee.www.simpletaxindia.net
  18. 18.  Exchange rate of RBI on the day on which TDS is required tobe deducted has to be considered.www.simpletaxindia.net
  19. 19. 1) The scope of withholding tax obligation on payment ofincome to non-resident expressly extended to all personsincluding non-residents irrespective of them having aresidence or place of business or business connection or anyother presence in India2) Effective 1 July 2012, payment to non-residents byspecified persons or in specified cases (to be notified) torequire an application to be made to the Tax Officer fordetermination of withholding tax, irrespective of whethersuch payment is taxable in India or notObligation to withhold the tax will be appliedregardless of absence of any territorial nexus.www.simpletaxindia.net
  20. 20.  As per recent amendment to the Indian Income Tax Act asannounced in Union Budget 2012, NRIs who wish to availDTAA benefit have to mandatorily provide Tax ResidencyCertificate (TRC) to the deductor (Bank). This is applicable forall NR customers who wish to avail DTAA benefit with effectfrom 1st April 2012.. TRC is issued by the tax/government authority of the countrywhere the NRI resides. So please check with the TaxDepartment or Finance Ministry in your country or with yourChartered Accountant abroad as to procedure to obtain TRC.No other document in lieu of TRC shall be considered foravailing the DTAA rate for the said financial year. Section 90(4) has been inserted in the aforesaid section witheffect from assessment year (AY) 2013-14 to provide that anassessee, not being a resident, to whom a DTAA applies, shallnot be entitled to claim any relief under such DTAA unless acertificate,containing prescribed particulars, of his being aresident in any country outside India or specified territoryoutside India, as the case may be, is obtained by him from theGovernment of that country.www.simpletaxindia.net
  21. 21. S.No Content1. Section 9/DTAA2. Issues related to payments covered in section 195 ?3. Point of withholding tax4 TDS on Gross or Net Amount ?5. Reverse Charge ?6. TDS on software ?7. Issues related to 15CA & 15CB8. Whether for all phases of work – separate certificate isrequired?9. Reimbursement of expenses10. Refund of Tax Depositwww.simpletaxindia.net
  22. 22. www.simpletaxindia.net
  23. 23. Nature of Income Act (apart from section 5where-ever applicable)Treaty/DTAABusiness/Profession Section 9(1)(i): Concept ofBusiness ConnectionArticle 5;7; 14: Concept ofPermanent Establishment/PEor Fixed BaseSalary Income Section 9(1)(ii) Article 15Dividend Income Section 9(1)(iv) and section 115A Article 10Interest Income Section 9(1)(v) and section 115A Article 11Royalties Section 9(1)(vi) and section 115A Article 12Fees for technicalservices/FTSSection 9(1)(vii) and section 115A Article 12Capital Gains Section 9(1)(i) and section 45 Article 13www.simpletaxindia.net
  24. 24. Nature of Income TaxabilityBusiness Profession sec. 9(1)(i) Taxable if Business Connectionin India or property or asset orsource in India or transfer of acapital asset situated in IndiaCapital Gains Sec. 9(i)(i) Taxable if situated of Shares /Property in IndiaInterest Income Sec. 9(1)(v) Taxable if sourced from IndiaRoyalties Sec. 9(1)(vi) Taxable if sourced from IndiaFees for Technical Services(‘FTS’) Sec. 9(1)(vii)Taxable if sourced from Indiawww.simpletaxindia.net
  25. 25. Income by way of Royalty/ FTS shall be deemed to accrue orarise in India if payable byGovernmentBusiness/ Professionoutside IndiaEXCEPTORResident NRSource of incomeoutside IndiaBusiness/Profession in IndiaSource of incomein IndiaWHEREORIncome shall be deemed to accrue or arise irrespective of whether:NR has residence/ place of business/ business connection in IndiaNR has rendered services in IndiaFinanceAct, 2012 Income deemed to be accruing or arising to non-residents directly orindirectly through the transfer of a capital asset situated in India is tobe taxed in India with retrospective effect from 1 April 1962www.simpletaxindia.net
  26. 26. 1) Payment for software-whether Royalty or not ?2) Acquiring Controlling interest in Indian Company.3) Payment made by Branch to HO/ other branch issubject to TDS.4) Payment For Fees For technical services5) Payment for Repairwww.simpletaxindia.net
  27. 27. Payment For Software- Case :-High Court of KarnatakaV.Samsung Electronic Co. Ltd-Issue :- Whether Payment of shrinkwrapped software/ off the shelf softwareamounts to Royalty- Conclusion :- Yeswww.simpletaxindia.net
  28. 28. Indirect Acquisition of controllinginterest in Indian company-Vodafone International Holding BV221 CTR 617 (SC)-Issue :- Whether Capital gain onsale of shares is taxable or not ?-Conclusion :- NO, Now Yes.www.simpletaxindia.net
  29. 29. PAYMENT FOR USE OF TELEPHONE,ELECTRICITY Etc.Case :- 1 – (251 ITR 53) (Mad) sky cell Issue :- whether FTS or Not ? Conclusion :- No FTS Excludes :-• Construction, Assembly,• Mining, Any like project,• Income chargeable as salaries,www.simpletaxindia.net
  30. 30. Case 1 Specialized repairs –(79 TTJ 268) (Del)-SaharaIssues :- Whether is FTS or not ? Conclusion:- Specialized Repair is FTSCase 2General repairs- (91 ITD 133)(Del)-LufthansaIssues :- Whether is FTS or not ? Conclusion:- General repairs is not FTS.www.simpletaxindia.net
  31. 31. Facts of the case Referred to Case Law1. Payment are made from aresident to non-resident and notbetween two non-residentsituated outside India.Vodafone International HoldingB.V Ltd(2012) 17 taxman.com 2022. Payment made by Branch toHO/ other branch is subject toTDSCBDT vide Circular No. 740 dt17.4.1996, Dresdner Bank AG vs.Addl. CIT (2006) 108 ITD 375(MUM)3. TDS is to be deducted by branchfor making interest payment toH.OABN Amro Bank NV (2011) 198Taxman 376 (Cal)4. TDS required to be deductedwhere Assessee treating himself asagent of non-resident200 ITR 441 (Cal)- Grind lays Bankltd v/s. CITwww.simpletaxindia.net
  32. 32. Point of TaxWithholdingSection 195(1) Affirmed by - National Organic96 TTJ 765 (ITAT Mum)Contrary View - Flakt (India) Ltd267 ITR 727 (AAR)Raymond Ltd.86 ITD 791 (ITAT Mum)United Breweries Ltd(211 ITR 256) (Kar)Pfizer Corporation259 ITR 391 (Mum)Payment of Royalty under DTAA- tax deductible on payment?Tax withholding in cases whereRBI approval requiredTax to be withheld even whenno remittance on adjustment ofduesWithholding at the time of creditor payment whichever is earlierwww.simpletaxindia.net
  33. 33. Grossing up required in case of net of tax payments* Amount of tax payable by the NR has to be added to the incomeremitted to the NR and the tax payable by the NR should bedetermined with reference to the gross figure arrived.* Not applicable in case of payments referred to in S.192(1A) - Nonmonetary perquisites taxable as salarywww.simpletaxindia.net
  34. 34. S.No Particulars1. Documentation by CA while issuing 15CB2. Whether TAX RESIDENCY CERTIFICATE sufficient evidenceto claim Tax treaty benefits ?3. Verification of Permanent Establishment in India4. Issuance of certificate in absence of complete informationabout payee.5. Amount attributable to PE or not; if yes, then quantum ofamount attributable?www.simpletaxindia.net
  35. 35. RemitterObtains certificate ofAccountant (Form 15CB)Electronically upload theremittance details inForm 15CA on www.tin-nsdl.comTake printout of filledundertaking form (15CA)with system generatedacknowledgementnumberPrintout of theundertaking form (15CA)is signedSubmit the signed paperundertaking form to theRBI/ Authorized Dealeralong with certificate ofan Accountant induplicateRBI/ Authorized Dealerremits the AmountA copy of undertaking(15CA) & Certificate ofAccountant (15CB) byRBI / Authorized Dealerforwarded to theAO Every remittancerequired tofollow procedureeven if notchargeable totax in India Requires thepayer to providePAN of the nonresident Form 15CB neednot be filed withthe taxdepartment –informationrequirement issame as Form15CAwww.simpletaxindia.net
  36. 36. Documentation by CA while issuing Form15CB (from payer)• Agreement and Invoices;• Payment details• Correspondences• Technical Advice• Proof of services being rendered in case of GroupCompany transactions• E-mails etc regarding pricing in case of Group Companytransactions• Remitting bank details• Rate of conversion of foreign currency• Tax Residency Certificatewww.simpletaxindia.net
  37. 37. • Declaration/Certificate from payee for :–- no PE,- tax residency,- beneficial owner,- treaty entitlement, etc; and- Indemnification from payee- Proposed period of stay (for e.g. for purpose of IPS)Obtain TRC (Tax Residency Certificate) of Payee so as toexamine treaty provisions (else obtain self declaration form(SDF) sufficiently detailed from payee as to tax residency of acountry)- at appropriate places mention certificate based ondeclaration of payee e.g. declaration of payee on PE presence/income connection with PE may be required..)www.simpletaxindia.net
  38. 38. Held Yes in 113 ITD 85 (issues:where ITAT order there forearlier period?; where AO/TPOorder in payee case is there forearlier period? Etc)www.simpletaxindia.net
  39. 39. Cost to cost reimbursement doesnot requires TDSDanfoss268 ITR 1 (AAR)Timken India Ltd.193 CTR 610 (AAR)Cochin Refineries Ltd.222 ITR 354 (Ker)Hyder Consulting Ltd.236 ITR 640 (AAR)Reimbursement of costallocationReimbursement ofexpenses along with FTSwww.simpletaxindia.net
  40. 40.  Referred to Circular No 7/2007, dt October 23,2007 andCircular No. 7/2011, dt September 27,2011:- Cases Covered:- In the following cases tax deducted u/s195 can be refunded to the deductor:-• The contract is cancelled and no remittance ismade to the non-resident.• The remittance is duly made to the non-resident,but the contract is cancelled. In such cases, theremitted amount has been returned to the personresponsible for deducting tax at source.• The remittance is duly made to the non-resident,but the contract is cancelled. In such cases, theremitted amount has been returned to the personsresponsible for deducting tax at source.www.simpletaxindia.net
  41. 41. • The contract is cancelled after partial execution andno remittance is made to the non-resident for thenon-executed part.• The contract is cancelled after partial executionand remittance related to non-executed part ismade to the non-resident. In such cases, theremitted amount has been returned to the personresponsible for deducting the tax at sources or noremittance is made but tax was deducted anddeposited when the amount was credited to theaccount of the non-resident.• These occurs exemption of the remitted amountfrom tax either by amendment in law or bynotification under the provision of Act.• An order is passes under section 154 or 248 or 264reducing the tax deduction liability of a deductorunder section 195.www.simpletaxindia.net
  42. 42. • There occurs deduction of tax twice from the sameincome by mistake.• There occurs payment of tax on account ofgrossing up which was not required under theprovision of the Act.• There occurs payment of tax at a higher rate underthe domestic law while a lower rate is prescribedin the relevant double taxation avoidance treatyentered into by India or vice versa.www.simpletaxindia.net
  43. 43. www.simpletaxindia.net
  44. 44. ApplicablesectionNature of default Consequence40(a) Withholding tax notdeducted or notdeposited withinprescribed timeDisallowance of expenses incomputation of taxable income ofpayer; deduction in year ofpayment201(1) Tax not withheld/depositedappropriatelyRecovery of tax not withheld/deposited or short withheld/deposited201(1A) Tax not withheld/depositedappropriatelyInterest @ 1% per month or part ofhe month221 Tax withheld notpaidPenalty, not exceeding the amountof tax not paid271C Tax not withheld orshort withheldPenalty, not exceeding the amountof tax not withheldwww.simpletaxindia.net
  45. 45. Questions…www.simpletaxindia.net
  46. 46. www.simpletaxindia.net

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