TDS on foreign payment+ section 206AA

[Naveen Jain]

Please confirm the rate of TDS in case of foreign payment.

Rate as per Income Tax 10%

Rate as per DTAA 25%

Deductee has no PAN, so as per Section 206AA higher rate i.e. 20%

Thanks

Naveen Jain

[rinki todi]

firstly as per section 90(2) , the rate that is beneficial as per income tax act or DTAA will prevail. therefore, rate of 10% will be applicable. secondly comimg to Section 206AA,as per the said section' Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereaf­ter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:—

           (i)  at the rate specified in the relevant provision of this Act; or

          (ii)  at the rate or rates in force; or

         (iii)  at the rate of twenty per cent.

In the above case the rate applicable as per IT Act 1961 is 10% whereas the rate applicable for non furnishing PAN is 20%, therefore rate of 20% will be applicable on the said payment

AI Summary

Withholding tax: failure to furnish PAN triggers higher statutory withholding, overriding treaty benefit in practice. Failure to furnish PAN triggers the higher withholding obligation under Section 206AA, so the deductor must apply the statutory higher rate for tax deduction at source even where a lower rate would otherwise be available under Section 90(2) as the beneficial rate.