Company A: An Indian private limited company, owned and operated by an Indian citizen. Company B: An Australian company, owned and operated by an Australian citizen who is also an Australian tax resident. Company C: A Dubai-registered company, owned by a Dubai citizen and a Dubai tax resident. Background of the Transaction: Company A (India) entered into a contract with Company B (Australia) to provide software development services. The services are being delivered and consumed entirely in Australia. To fulfill this contract, Company A subcontracted the work to Company C (Dubai). Company C delivered the software development services directly to Company B in Australia, on behalf of Company A. Company B made the full payment to Company A for the services. Now, Company A intends to pay Company C for the work performed. My Question: Given that: The service was delivered outside India, Company C has no presence, business connection, or permanent establishment (PE) in India, The services were rendered and utilized entirely outside India (by an Australian entity), Is TDS under Section 195 of the Income-tax Act applicable on the payment that Company A (India) makes to Company C (Dubai)? If not, could you please guide us on: Whether we need to obtain a CA certificate (Form 15CB) and file Form 15CA, Any documentation or declaration that should be maintained to support the non-applicability of TDS, Any other compliance steps to be taken with respect to remittance of this payment. Your expert opinion on this matter would be greatly appreciated to ensure we are fully compliant with Indian tax regulations.
The Indian Company has to deduct tax u/s 195 of Income Tax on the proposed payment to the Dubai company. The Subai company can apply online to the Income Tax Department for Nil or lower deduction of tax. The Indian Company has to get certificate of a CA in Form 15CB before making payment to the Dubai company.
The contract can be structured in a tax efficient manner.
- Company A is liable to deduct TDS u/s 195 (under the head "fees for technical services") while making payment to the Company C as the income is deemed to accrue or arise in India for the Company C
- Company C can apply for NIL or lower TDS deduction certificate
- Company A is liable to file Form15CB & 15CA
- Non-deduction of TDS will result into the disallowance u/s 40(a)(i)
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In this case:
Company C (Dubai) has no business connection or PE in India.
Services were performed and utilized entirely outside India.
Payment is for a subcontracted export-related service, and hence not taxable in India in the hands of the non-resident under normal provisions or under Section 9 (deeming provisions).
Thus, income is not chargeable to tax in India, and Section 195 TDS does not apply.
Required Compliance & Documentation
Even though no TDS is applicable, banks may require a CA certificate (Form 15CB) as a procedural prerequisite for foreign remittance.
The CA in Form 15CB will certify that:
"The payment made to Company C is not chargeable to tax in India, and therefore, no tax is required to be deducted at source under Section 195."
You will still need to file Form 15CA – Part D, which is meant for payments not chargeable to tax in India.
It is a self-declaration by the remitter, stating that the income is not taxable in India.
To defend your position in case of a future scrutiny or audit:
Agreement between Company A (India) and Company C (Dubai)
Contract between Company A and Company B (Australia)
Invoice from Company C to Company A
Proof of service delivery directly to Company B
Declaration from Company C that it has no PE or business connection in India
CA working papers justifying no taxability (e.g., no source of income in India under Section 9)
Copy of 15CB and acknowledgment of 15CA.
