Someone Asked on this Blog
A company imported scrap from USA and paid shipping charges to shipping companies (Indian and also foreign) Whether tax on shipping charges is required to be deducted and if so at what rates.
ThanksFrom: paraschhajed@…..com
In absence of complete details, I presume that the questions relate to Shipping From other country only i.e Shipped at Foreign Port(That is important!) . In that case ,Following scenario may be possible . In each scenario [circumstances]the answer to your question will differ
Scene1 : The foreign shipping company is shipped at foreign country and payment is made to it by your client in India.
Scene2.: The foreign company has an agent in India who secure orders on behalf of foreign Shipping company .
Scene 3. The Indian shipping company is paid freight charges.
Scene 1 :The foreign shipping company is shipped at foreign country and payment is made to it by your client in India.
Since income to the foreign company is due to service provided to an Indian company /concern , the income generated shall be taxable in India. Therefore ,Tax is to be deducted u/s 195 of the I T Act because of the clause “Any Sum” in Section 195 . However , point to note here that in case there is DTAA agreement which specifically provides that the shipping profit shall be taxable in the country of origin , in that case no TDS is required to be done. This is as per circular Circular 732 dt. 20.12.1995 .
In this case, the income of the foreign company is taxable in India , thus any payment shall be subject to provison to TDS u/s 195 of the I T Act. In this case also , the ciruclar no 732 is applicable.
Rate of tax in both the aforesaid cases will be 40% +S.C .The rates of tax at source is higher in this case ,on account of the provision that u/s 195 the TDS is t be done at specified rates.
In this case, the charges paid to Indian company is subject to TDS u/s 194 C of the I T Act , because the transport contract includes shipping transport and section 194C covers only RESIDENTS. Rate of tax will be 2% plus S.C .
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About taxworry
let me have few more frequently asked questions for TDS on payment to foreign company