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

AI Summary

TDS on cross border goods purchases: no withholding if the import payment is not chargeable to tax in India.
TDS on a payment to a non resident for import of goods is governed by whether the sum is chargeable to tax in India. Purchase-related withholding aimed at resident sellers does not apply to non residents. A pure import payment for tangible goods, with title transfer outside India and source of income outside India, is not taxable in India and therefore does not trigger withholding under the non resident withholding rule. Maintain commercial and shipping documentation to evidence the non taxable character of the remittance and comply with remittance filing procedures where required.