Non resident company not having PE in India can claim TDS credit without providing PAN

[VINIT AGRAWAL]

Indian company enter into an agreement with foreign company for providing consultancy services.

Foreign company (Germany) does not having PE in India can claim TDS deducted by Indian company.

It does not have PAN also.

What documents are required by foreign company to get TDS credit deducted by Indian company

[Ravi Kumar]

• If you are a Resident, income earned by you anywhere in the world shall be taxable in India and has to be included in your total income.

• Convert income earned outside India into Indian currency – Convert your income in foreign currency into Rupees by using the State Bank of India telegraphic transfer buying rate (TTBR) of the last day of the month before the month in which income is due. For example, for converting salary income of June 2014, use the TTBR of the relevant currency for May 2014 and convert your salary into Indian Rupees.

• Now include this income under the head to which it belongs – include salary income under the head ‘salaries’ etc.

• You have to treat this income as any other income which is earned by you locally. Minimum exemption of ₹ 2,50,000 is allowed on your total income and remaining income is taxable as per slab rates.

• If TDS has been deducted on your income you are allowed to take credit of such taxes. For this purpose, reference has to be made to the relevant DTAA (Double Tax Avoidance Agreement) of the country where such income has been earned. India has entered into DTAAs with several countries. DTAA makes sure a tax payer is not doubly taxed for income earned outside the country of residence. Since income may be taxed at source i.e. from the place it originated and is also usually taxable in the country of residence, the DTAA makes sure that the taxpayer is not adversely impacted. The tax payer is also allowed to take credit of TDS deducted.

• Taking benefit of a DTAA involves obtaining a TRC or a tax residency certificate, that helps identify and certify your tax residency status to make sure the correct DTAA has been applied. This is also required by the tax laws in India.

• While taking TDS credit make sure you are referring to the correct DTAA. Under DTAA, there are two methods to claim tax relief – exemption method and tax credit method. By exemption method, income is taxed in one country and exempted in another. In tax credit method, where the income is taxed in both countries, tax relief can be claimed in the country of residence.

• If no DTAA exists between the 2 countries you may still be able to tax credit of foreign taxes paid. You may need an expert to assist you.

• In the latest income tax return forms, several disclosures have been added for income on which DTAA benefit has been claimed.

If you have earned foreign income on which TDS or any form of tax has been deducted, you may need help from an expert to obtain a TRC and make sure correct DTAA is applied so you can take credit of the foreign tax deducted.

[VINIT AGRAWAL]

My query is "How does German foreign company will get TDS credit deducted in India" if it does not have PAN. Above reply is related to Indian earning foreign income.

AI Summary

DTAA tax credit: non-resident companies may claim credit for Indian withholding taxes if tax residency is certified. A non-resident company without a PE and without PAN seeking credit for Indian withholding tax must rely on the relevant DTAA and documentary proof of tax residency, principally a Tax Residency Certificate, to establish entitlement to foreign tax credit; procedural points include currency conversion rules for return inclusion, DTAA methods (exemption vs tax credit), ITR disclosures for DTAA claims, and obtaining expert assistance where no DTAA or uncertainty exists.