Applicability of WHT on import of Goods

[Ramanathan Seshan]

Dear Experts,

I would like to clarify whether A Ltd, an Indian company, is required to deduct TDS while making a payment of INR 5 crores to S Ltd, a Singapore-based company, for the import of goods into India.

Section 194Q of the Income Tax Act pertains to TDS on the purchase of goods; however, it is applicable only when the seller is a resident of India. Since S Ltd is a non-resident entity, the provisions of Section 194Q would not be applicable in this case, and hence, TDS under this section is not required to be deducted.

That said, should the applicability of TDS under Section 195 be considered for such cross-border transactions? Section 195 mandates the deduction of tax on payments made to non-residents, provided the amount is chargeable to tax under the Act. It covers payments such as interest or any other sum (excluding salaries), and the deduction is to be made at the time of credit or payment, whichever is earlier, at the prescribed rates.

Kindly advise on the appropriate TDS provisions applicable in this scenario.

Warm regards,

S. Ram

[YAGAY andSUN]

You're absolutely right in your interpretation of Section 194Q — and you've also rightly pointed out the importance of examining Section 195 in cross-border payments. Let’s walk through the correct legal position step-by-step:

✅ Summary Conclusion:

No TDS is required to be deducted by A Ltd under either Section 194Q or Section 195 on payment of INR 5 crores to S Ltd (Singapore) for import of goods, provided that the amount is not chargeable to tax in India under the Income Tax Act.

🔹 Section 194Q – Not Applicable

• Applies to resident buyer purchasing goods from a resident seller.
• Since S Ltd (Singapore) is a non-resident, this section is not triggered.

✅ Conclusion: Not applicable.

🔹 Section 195 – Key Focus Area

Section 195 mandates:

“Any person responsible for paying to a non-resident... any interest or any other sum chargeable under the provisions of this Act shall deduct income-tax…”

🔍 Two-part test for applicability:

1. Is the payment made to a non-resident? ✅ Yes – to S Ltd (Singapore)
2. Is the amount chargeable to tax under the Income Tax Act, 1961? 

🧾 Application to Import of Goods:

• Import of goods is a transaction in the nature of sale of tangible goods.
• The payment is for the cost of goods, not for services, interest, royalty, FTS (fees for technical services), etc.
• The source of income in this case is outside India.
• Under Indian tax law (read with Section 5 and Section 9), income from sale of goods by a non-resident to an Indian buyer, where the title passes outside India, is not taxable in India.

🔹 Hence, not chargeable to tax in India, and Section 195 is not applicable.

📌 Practical Compliance Steps / Recommendation:

• Ensure documentation like:
  • Import contract / invoice
  • Bill of entry
  • Shipping documents
  • Proof that title transfer is outside India

This will help demonstrate that the transaction is a pure import, and no income accrues/arises to the non-resident in India.

✅ If needed, A Ltd can also obtain a CA Certificate in Form 15CB or go through Form 15CA filing for remittance (as per RBI/Income Tax remittance rules) — though TDS may not be required, Form 15CA/CB may still be mandatory depending on value and bank compliance.

Final View:

• Section 194Q: Not applicable – S Ltd is a non-resident.
• Section 195: Applicable only if payment is chargeable to tax in India. In case of import of goods, it's not chargeable, hence no TDS is required.

[Ramanathan Seshan]

Thanks Yagay and Sun-sir for your detailed explanation.

Regards,

S Ram

AI Summary

TDS Not Required Under Section 194Q or 195 for Payments to Foreign Sellers When Title Transfers Outside India The query concerns whether an Indian company (A Ltd) must deduct TDS on a payment of INR 5 crores to a Singapore company (S Ltd) for imported goods. The analysis confirms that Section 194Q is inapplicable as it only pertains to resident sellers. Regarding Section 195, which governs payments to non-residents, no TDS is required if the amount isn't taxable in India. For imported goods where title transfers outside India, the income is not considered Indian-sourced and thus not subject to Indian taxation. The responder recommends maintaining proper documentation (import contract, bill of entry, shipping documents) to demonstrate the transaction's nature and compliance with remittance rules.