Are we required to deduct TDS (Tax Deducted at Source) while remitting commission for the services of meeting with potential customer(s), finalising techno-commercial discussions, after sales support, and business development to a resident in Israel who has no Permanent Establishment (PE) in India, when all his services are in Israel? Can the Income Tax Department raise a TDS demand in the future? Even if we deduct TDS, can the recipient claim credit in his income tax return filed in Israel?
Commission paid to a foreign agent of an Indian company who operates in his own country and does not have a PE in India does not form part of income which arises in India. Since the payment is remitted directly to him abroad, such commission income is not liable to be taxed in India, and accordingly, no TDS need be deducted on such commission payment. The commission expenditure would also be an allowable expenditure under our Income Tax laws. Regarding whether our IT Department can raise a demand for TDS in the future, I don't think anyone can give you any assurance on that. India does have a Double Taxation Avoidance Agreement (DTAA) with Israel. It comes into play when the income of a person is taxable in both jurisdictions. When tax is not at all payable in India, any deduction by you out of your free will does not bind the Israeli authorities to give any tax credit to your commission agent.
Our buyer in Europe has remitted $5,000 to us for fabric to be given to a firm in Delhi. Kindly advise if this is permitted, and if so, how do we reconcile our foreign exchange account?
It is permitted. You book the rupee equivalent of the foreign exchange you receive as sales in your books.
As a merchant exporter, we give a photocopy of the drawback shipping bill to our supporting manufacturer - after masking sensitive details such as buyer's name and address - for submission by him to his licensing authority. Our supporting manufacturer informs that his licensing authority is insisting on production of the original shipping bill in order to admit discharge of export obligation against his EPCG license. We are afraid that giving the original shipping bill will result in divulging sensitive information such as price, destination, buyer particulars, etc. Can you suggest a way out?
You may ask your supporting manufacturer to inform the licensing authority that the form ANF-5B prescribed for redemption of EPCG authorisation calls for submission of a Chartered/Cost Accountant certificate in the Appendix-26A format and that there is no requirement to submit the original shipping bill. You may insist on a written directive from the licensing authority giving reasons for demanding the original shipping bill. If he is able to get such a written directive, you may convey your difficulties to the licensing authority and ask him to withdraw the directive. Incidentally, the DGFT Policy Circular 18 dated 4.9.2006 allows submission of shipping bills with sensitive information defaced to protect confidential information.
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