1) TDS on Payments to Non-Residents (Section 195)
Any person responsible for paying any sum to a non-resident, which is chargeable to tax under the Income Tax Act shall at the time of payment deduct tax at source at the rates in force .
Rates in force: (Section 2(37A) + Section 90(2))
- Rate specified in the relevant Finance Act (or)
- Rates specified in DTAA
Whichever is beneficial to the assessee.
2) DTAA Between India and South Korea
NOTIFICATION NO. SO 3265(E) [NO.96/2016 (F.NO.500/121/1996-FTD-II)], DATED 24-10-2016
ARTICLE 12: ROYALTIES AND FEES FOR TECHNICAL SERVICES
Fees for technical services arising in India and paid to a resident of South Korea shall be taxed in India at a rate which shall not exceed 10 percent of the gross amount of fees for technical services.
As per Section 115A of Indian Income Tax Act, such fees shall be taxed at 10% + Cess and Surcharge (if applicable)
3) Clarification on applicability of Surcharge and Cess
( BOC Group Ltd vs CIT) – ITAT
Rates as per DTAA includes all surcharges and Cess. As it is beneficial for the Korean Company, the Indian Company should deduct tax at the rate of 10 % without any Surcharge and Cess. (DTAA Rate).
4) Credit of Tax borne by Non-Resident
ARTICLE 23
ELIMINATION OF DOUBLE TAXATION
The tax deducted by the Indian Company in accordance with this DTAA shall be allowed as a credit for Korean Company against their Tax Liability in Korea
5) Conclusion
- The Indian Company should deduct tax at the flat rate of 10 % (No additional Surcharge and Cess )
- Such deducted amount can be taken as credit by Korean company against their Tax Liability under Korean Tax Law
