Upgrad LLM

tds


Hi friends,


Mr.A (exporter of India) sent a shipment to Mr.B (U.K.) at payment terms on 120 days. Mr.A has discounted the bill from Mr.C (A finance company at U.K.). Mr.C has sent the payment to Mr.A after deducting the interest and discounting charges.


1. is Mr.A is required to deduct the TDS on interest and discounting charges paid to Mr.C


2. under which section.


Please reply

 
Reply   
 
Advocate

Dear Mittal:


As per my opinion TDS on interest has to be deducted under 194A of the Income Tax Act. TDS has to be made on the maximum rate applicable  viz 30% plus applicable surcharge and Education Cess which works out to 33.99%

 
Reply   
 


Lawyer

Dear, agreed with the answer of Mr.A.V.Vishal

 
Reply   
 

My dear friends,


194A is for residents only.

 
Reply   
 
Advocate

Dear Mittal,


Yes, 194A is applicable to residents but in your case the Deductor is a resident so 194A is applicable, In case TDS is not deducted than the expenses incurred under Interest & Disounting charges will be disallowed. Any ways wil have to look into DTAA with U K if any to see if any provision with regard to TDS has been made.

 
Reply   
 
Advocate

Dear Mittal: I am posting a extract of the DTAA with U.K in respect of Interest Income. Hope it will be useful to you.


"ARTICLE 12 - Interest - 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.


2. However, such interest may also be taxed in the Contracting State in which it arises and accordingly to the law of that State, provided that where the resident of the other Contracting State is the beneficial owner of the interest the tax so charged shall not exceed 15 per cent of the gross amount of the interest.


3. Notwithstanding the provisions of paragraph 2 of this Article:


(a) where the interest is paid to a bank carrying on a bona fide banking business which is a resident of the other Contracting State and is the beneficial owner of the interest, the tax charged in the Contracting State in which the interest arises shall not exceed 10 percent of the gross amount of the interest;


(b) where the interest is paid to the Government of one of the Contracting States or a political sub-division or local authority of that State or the Reserve Bank of India, it shall not be subject to tax by the State in which it arises.


4. Notwithstanding the provisions of Article 7 of this Convention and of paragraphs 2 and 3 of this Article :


(a) interest arising in India which is paid to any beneficially owned by a resident of the United Kingdom shall be exempt from tax in India if it is paid in respect of a loan made, guaranteed or insured, or any other debt-claim or credit guaranteed or insured by the United Kingdom Export Credits Guarantee Department; and


(b) interest arising in the United Kingdom which is paid to and beneficially owned by a resident of India shall be exempt from tax in the United Kingdom if it is paid in respect of a loan made, guaranteed or insured, or any other debt-claim or credit guaranteed or insured by the Export Credits and Guarantee Corporation of India and/or Export-Import Bank of India.


5. The term interest as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtors profits, and in particular, income from Government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures but, subject to the provisions of paragraph 9 of this Article, shall not include any item which is treated as a distribution under the provisions of Article 11 (Dividends) of this Convention.


6. The provisions of paragraphs 1, 2 and 3(a) of this Article shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 (Business profits) or Article 15 (Independent personal services) of this Convention, as the case may be shall apply.


7. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by that permanent establishment or fixed base, then such interest shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.


8. Where, owing to a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest paid exceeds for whatever reason the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this Convention.


9. Any provision in the laws of either Contracting State relating only to interest paid a non-resident company shall not operate so as to require such interest paid to a company which is a resident of the other Contracting State to be treated as a distribution or dividend by the company paying such interest or to be left out of account as a deduction in computing the taxable profits of the company paying the interest. The preceding sentence shall not apply to interest paid to a company which is a resident of one of the Contracting State in which more than 50 per cent of the voting power is controlled, directly or indirectly, by a person or persons who are residents of the other Contracting State.


10. The relief from tax provided for in paragraph 2 of this Article shall not apply if the beneficial owner of the interest :


(a) is exempt from tax on such income in the Contracting State of which he is a resident ; and


(b) sells or makes a contract to sell the holding from which such interest is derived within three months of the date such beneficial owner acquired such holding.


11. The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment."


Hope it is useful & helful too

 
Reply   
 

Thanks Mr.Vishal.

 
Reply   
 

LEAVE A REPLY


    

Your are not logged in . Please login to post replies

Click here to Login / Register  



 

  Search Forum








×

Menu

CrPC MASTERCLASS!     |    x