Working in the taxation department of an automobile major has its own advantages. An interesting issue on TDS popped up. The company had deducted and remitted TDS on a non resident payment under Article 12 “Fees for technical services” to Indo – US tax treaty. However the recipient refused to accept the net of tax amount as he contended that any payments to third parties (including tax department) need to be borne by the payer and he demanded a refund of the deducted TDS. As a result of which the issue on TDS applicability on refund of TDS arose.
As per Section 195A of the Income tax act, 1961 (earlier Circular 155 dated 21-12-1974) specifies that under any arrangement if the tax chargeable on any income referred to the TDS provisions are borne by the person by whom the income is payable then for the purposes of deduction of tax, the income shall be increased by such an amount that the net amount payable after deduction shall be the amount payable under such arrangement.
For instance, Technical fees payable is Rs.100 and the applicable TDS rate is 10% then the technical fees shall be grossed up by Rs.11.11 (100*100/90) and Rs.11.11 shall be the TDS amount. Rs.100 shall be paid to the vendor/party.
Implications of the above:
The TDS grossed up is the cost of the payer and
The above TDS paid can be claimed as business expenditure.
Instead of taking the cost, better way would be to advise the US Company to claim tax credit in US for the tax deducted and remitted in India which is allowed in Article 25 of the Indo US treaty.
2 comments:
Have you learnt all this in your previous work place or......?? I am terribly dejected. I feel I am not learning anything at all. Just getting, formatting and attaching,replicating. AS usual some totals will go wrong and then everyone will have to say' concentrate' and all shit. We do something and tell someone else that we didnt do it. That too after classes has begun at 9 30 in the morning itself I feel like going home!!!!
There is no need to be dejected....It took some time for me to learn and I was taught too...
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