Please read this article as a deductee to get more clarity.

While making foreign remittance we deduct TDS whether as per Income Tax Act,1961 or as per DTAA or provide the benefit of DTAA, whichever is more beneficial to assessee.

Case-1: If we are taking benefit of DTAA:

1. Section 90(4) of the Income Tax Act mandates the requirement of TRC (Tax Residency Certificate) if we want to claim any relief under DTAA otherwise no relief under DTAA will be provided.

2. Section 90(5) of the Income Tax Act mandates the requirement of 10F in addition to TRC.

Therefore to claim any benefit under DTAA, TRC & 10F are a must along with the No-PE declaration.

Case-2: If we are deducting TDS as per rate mentioned in Income Tax Act 

Section 206AA of the Income Tax Act mandates a person who is entitled to receive any amount on which tax is deductible to furnish PAN to the deductor, failing which TDS will be deducted at higher of the following rates:

1. at the rate specified in the relevant provision of this Act; or

2. at the rate or rates in force; or

3. at the rate of 20%

However, a relaxation under Rule 37BC has been provided here in case of non-resident or foreign company if the nature of payment is Interest, Royalty, Fee for Technical Services or it is on the Transfer of any Capital Asset, but non-resident or foreign company has to furnish following details:

1. Name, Email ID & Contact Number

2. Address

3. TRC

4. Tax Identification Number in foreign country or Unique Number of that country

Accordingly, as you can see, even if we are applying the TDS rate as per the Income Tax Act, we would be needing TRC otherwise TDS would be deducted at 20% or higher rate followed by cess in non-PAN cases.

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14 Comments

  1. Jay says:

    Hi. I have query.
    If my company does a MTT (Merchanting Trade Transaction) wherein we buy from X country and sell to Y country. Then, when paying for the goods to supplier in X country, do we need to withhold TDS if TRC is not provided by supplier?

  2. ms gayathri says:

    Hi. Im a long term bona fide resident of india, us citizen. Have been paying indian income tax. Question: is filing form 2555 along with 1040 ez enough or do I need to obtain a dtta also? Please advice. Thanks. Gayathri

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