TDS on foreign payment+ section 206AA

[Naveen Jain]

 Dear All,

Please confirm the tds rate in following situation

As per Budget amendment tds rate for foreign payment in respect of fee for technical service is 25%, DTAA rate for Polland is 22.5% and foreign party does not have PAN so applicability of Section 206AA.  In that situation what is the rate of TDS?????????

Regards

CA. Naveen Jain 

[Ametek Instruments India Private Limited]

Section 206AA, provides that in the absence of PAN TDS to be deducted at higher of:

 (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 present case the TDS deduction has to be at 25%.

[Naveen Jain]

Thanks for your valuable opinion.

One more query: On 25% should surcharge, Education Cess and higher Secondary Cess applicable or not?

As Section 206AA not mentioned for surcharge and education cess.

 

 

AI Summary

Tax Deduction at Source rules require a higher default withholding when the payee lacks PAN, overriding the treaty rate. Where a foreign payment for fees for technical services is subject to withholding and the payee lacks a PAN, the statutory TDS PAN rule requires deduction at the higher statutory/default rate rather than a lower treaty rate; the forum concludes the higher statutory rate applies, and a separate question remains about applicability of surcharge and educational cesses under that default withholding.