TDS liability for advisory services from foreign nationals
Sep-6th-2010
I am a physician who also does trading in the stock markets and I file an autided IT return. I take advise from firms based in US via newsletters and also want to undergo online training courses run by similar firms in the US. I want to include the sums paid to these in my expense account. Do I have to deduct TDS on sums paid to these foreign nationals through my credit card?
singhvi
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Dear Sir
If you are paying to a non resident individual or firms of individuals (other than a company) then payment is covered by Article 15 of DTAA with USA, the text of the Article 15 is as under:
"ARTICLE 15 - Independent personal services - 1. Income derived by a person who is an individual or firm of individuals (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the first-mentioned State except in the following circumstances when such income may also be taxed in the other Contracting State :
(a) if such person has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or
(b) if the person’s stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 90 days in the relevant taxable year.
2. The term “professional services” includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants."
As per Article 15 of DTAA with USA, income derived by individual or firm of individuals shall taxable in the country of the service provider (where the service provider is resident as per tax laws) however there are two exceptions as mentioned in clause (a) and (b) of Article 15.
TDS under section 195
TDS liability come u/s 195 if income is chargeable to tax under the provisions of Income Tax Act. When income not chargeable to tax in India, by virtue of Provision of applicable DTAA, the deduction of tax u/s 195 does not come into play at all, it was held in the case of Maharastra State Electricity board vs CIT [2004]90 ITD 793(MUM).
As you mentioned you are paying to US based firms for online training, in our opinion it is covered by Article 15 of DTAA with USA. It is not taxable as per DTAA in India, if not comes in the exceptions mentioned in clause (a) & (b) of Article 15 of DTAA. As it is not taxable in India you are not liable to deduct TDS u/s 195.
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