Section 195 Withholding tax provision and its compliances

Any person responsible for paying to a non resident (company or non company) any sum which is chargeable under the provisions of the Act, 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 issue of cheque or draft or by any other mode , whichever is earlier, deduct income –tax thereon at the rate in force.

Therefore, withholding tax is attracted only when income is chargeable to tax U/s 4 of the Act. Therefore, for example, reimbursement of expense is not an income forming part of total income and therefore no withholding tax is applicable.

Therefore, once it is determined that particular income is chargeable to tax in India then payer has deduct withholding tax as per Income Tax provision or as per DTAA provision whichever is beneficial to receiver.

1. Sec. 90 of the Act, give relief to the assessee in the form of lower rate of withholding tax as mentioned in DTAA provided receiver of the income submit following documents as prescribed U/s 4 & 5 of the Act-

a) Tax residency certificate (TRC);

b) Form no. 10F;

c) Permanent Establishment (PE) certificate.

2. Submission of PAN U/s 206AA : there is amendment through sub section 7 where non resident is not required to submit PAN.

Following payments are generally made by our company –

a) Management consultancy service / technical service;

b) Day to day maintenance allowance;

3. Grossing up of Tax (U/s 195A) :

This provision talks about of grossing up of tax in those cases where under an agreement with vendor relevant tax is to be borne by the person by whom the income is payable. The method of grossing up is explained as below.

a. In case tax is payable under income tax, U/s 115A (Technical service)

Basic rate	10%
Add: Surcharge @ 2%	0.20% (assuming that income or aggregates of income will income will exceed One crore but not exceeds Rs. Ten crore)
Add : Health and Education cess @ 4%	.408%
Total Tax	10.608%
Grossing up of tax (10.608%*100%/89.392%)	11.867%

b. Grossing up under DTAA provision

Under Article 12	10%
Grossing up of tax (10%*100%/90%=)	11.11%

4. Rate of exchange for the purpose of tax at source on income payable in foreign currency :

As per Rule 26, for the purpose of deduction of tax at source on any income payable in foreign currency, the rate of exchange for the calculation of the value in rupees of such income payable to an assessee outside India shall be the SBI telegraphic transfer buying rate of such currency as on the date on which the tax is required to be deducted at source under the provision of Chapter XVIIB by the person responsible for paying such income.

5. Whether surcharge and Cess to be added in withholding tax rate mentioned in DTAA :

The rate mentioned in the respective Chapter of DTAA is inclusive tax ,ie Surcharge and Cess is already factored in it. Therefore, no Surcharge and Health and Education Cess is to be added separately.

In case withholding rate is being taken from DTAA rate then no surcharge and cess separately to be added as it is inclusive of tax.

Reliance is placed on the following judgements –

1) OSRAM India Pvt. Ltd. V/s DCIT (ITAT, Delhi)

2) DIC Asia Pacific Pte Ltd V/s Asst. Director Income Tax (ITAT, Kolkata)

6. Amount not deductible U/s 40 :

Any amount paid to non resident and no TDS is deducted or deducted but not paid on or before filing of return U/s 139(1) on which Chapter XVIIB is applicable will get disallowed while computing the total income.

Format of Permanent Establishment (PE) certificate

(on letter head)

Date: ___________, 2018

TO WHOMSOEVER IT MAY CONCERN

We, (Name of the Entity), hereby confirm as follows:

1. I/We am/are an/a Individual /Partnership Firm / Company / Trust / AOP / Bank / Government Body formed / incorporated <<Please delete what is not applicable>> in (Name of the Country) and a Tax Resident of (Name of the Country) under the Domestic Tax laws of the Country.

2. We qualify as Tax resident of (Name of the Country) in terms of the India- (Name of the Country) Double Tax Avoidance Agreement (“Tax Treaty”).

3. We do not have any permanent establishment / fixed place in India as envisaged under Article 5 of Tax Treaty. We do not have any business connection as envisaged under the Indian Income Tax Act, 1961 (the ‘Act’). Also we will not have a permanent establishment / fixed place in India within the meaning of the Tax Treaty nor will we have any business connection within the meaning of the Act for the financial year ending on March 31, 2019.

4. The amount payable to us is USD ____ on account of (please provide detail/ nature of receipt – sale of goods or services provided etc).

5. The place of our world assessment is (Name of the Country). Our tax identification / unique identification number in home country is ______________.

6. Our contact person / address details are as follows:

a. Name:

b. Email ID:

c. Contact no:

d. Address in home country where tax resident:

7. Our Indian Permanent Account Number is: <<Please provide or state Not Applicable>>

In the event of any change in the above position, we will intimate the same to you in writing. You may consider the above representations as subsisting unless intimated otherwise.

For (Name of the Entity)

Name of signing authority

Designation