Is TDS applicable on sales commission paid to non- residents for services rendered outside India?
Payment of sales commission to non-resident agents for the services rendered outside India will not fall in the category of the income received or deemed to be received in India as well as accrues or arises or is deemed to accrue or arise in India. Hence, there will be no liability to deduct tax at source (TDS)
- Section 195(1) of the IT Act provides that 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 IT Act shall deduct income tax thereon at the rates in force.
- Section 195 of the IT Act requires any person to deduct TDS before making payments to a non-resident if the income of such non-resident is chargeable to tax in India.
- Once the payment in question is commission then the provisions of Section 40(a)(i) of the IT Act are applicable only if such sum is chargeable to tax under IT Act.
- Commission paid to non-resident outside India for the services rendered outside India will not fall in the category of the income received for deemed or received in India as well as accrues or arises or is deemed to accrue or arise in India
- Accordingly, when the amount paid by the assessee is not chargeable to tax in India then the assessee is not liable to deduct TDS.
TDS applicability on sales commission paid to non- residents.
Section 195(1) of IT Act:
“195. Other sums.
- Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries”) shall, at the time of credit of such income to the account of the 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
- Provided that in the case of interest payable by the Government or a public sector bank deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode
Section 40(a)(i) of the IT Act:
“40. Amounts not deductible.
- Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”, -
- in the case of any assessee-
any interest (not being interest on a loan issued for public subscription before the 1st day of April 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable, -
- outside India; or
- in India to a non-resident, not being a company or to a foreign company,
- on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid [on or before the due date specified in sub-section (1) of section 139”.
Disclaimer:“Information contained herein is for informational purposes only and should not be used in deciding any particular case. The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts have been made to provide authentic information, it is suggested that to have better understanding and obtaining professional advice after thorough examination of particular situation.”