Hi, I am paying to Non Residents ( u/s 195 Royalty ) who does not have Establishment and PAN in India. I am grossing up and paying TDS from my pocket. Can you please tell me the Extra amount which I am paying from my pocket as TDS to department , Can I show that TDS part as Business Expense? Kindly give Income TAX notification for the same if answer is "YES". Example: ------------ Say Invoice Amount = 100 USD = 6500 INR TAX Rate = 20 % Grossedup Amount calculated = 8125 INR ( 100/ ( 100-20) x 6500 ) TDS amount = 8125 - 6500 = 1625 So I am paying INR 1625 from my pocket to department. Can I add INR 1625 in my Business Expense? [ Or In other word when I calculate Business Expense Should I consider 6500 INR or 8125 INR as my purchase cost ? In "15 CA" we are showing the calculated 8125 INR as cost ' Also when I file Service TAX return as reverse charge Mechanism we consider that calculated 8125 INR as purchase cost and calculate service tax on it ] If YES can you please give me Related Income TAX department Notification or any similar supporting case. Thank you
Yes, you can claim the TDS amount by increasing your business expense.
In your example, you will show 8125 as an expense.
I don't remember any notification to that because it's a established fact. There is no litigation around it.
Please feel free to call/ revert in case you need more clarity
Thanks and regards
Abhishek Dugar
CA CS B.Com
Grossing up of TDS can be done u/s 195A of the Income Tax Act. The TDS, which is usually part of the income of the recipient, can be borne by the deductor himself, if there is an agreement or arrangement to that effect. In such case, the TDS will have to be deducted on the grossed up income at the applicable rates. In the example given by you, your expenditure is Rs. 8,125/-, which is also the income of the recipient that needs to be declared in his income tax.
Thanks Abhishek and Vijaya Kumar . Mr. Vijaya Kumar - Can you please give me that Income TAX Notification number or any link to TAX website which tells the matter and also which tells Agreement is needed in this case , for my record. Somewhere I saw : It is a foreign company and they do not have PAN in India .. So they don't have way to Pay tax in India. So Agreement is meaningless. Agreement is needed only for domestic matter. } Thank you
As discussed over phone consultation, agreement will be helpful even in this case.
Hi,
Yes, you can claim the grossed up amount as your expense, i.e. in your example, you can claim Rs. 8125.
I wanted to only add one thing. Since there is no PAN, you are taking the rate of TDS as 20%. If there is a Double Taxation Avoidance Agreement between India and the Resident country of the Non-resident, then you can claim the benefit of the rates specified in it. These rates are usually lower than 20%.
Trust this clarifies.
Regards,
Keerthiga Padmanabhan
M.Com., CA, LLB
Query specifically asked to Mr. Vijaya Kumar.
