Understanding TDS on Import of Services

Understanding TDS on Import of Services: With or Without a Permanent Establishment (PE)?

When making payments to foreign service providers, one critical question arises: Is TDS applicable? The answer depends on whether the non-resident has a Permanent Establishment (PE) in India.

✅ If the non-resident has a PE in India: The income is taxable in India, and TDS must be deducted at the applicable rate. Business income is taxed as per domestic tax rates (e.g., 40% for foreign companies), while Fees for Technical Services (FTS) and Royalty attract 10% TDS (subject to DTAA benefits).

🚫 If the non-resident does NOT have a PE in India: The income is generally not taxable in India, unless it falls under FTS or Royalty. In such cases, TDS at 10% applies unless a lower DTAA rate is available. If the service is provided entirely outside India and does not fall under these categories, no TDS is required.

💡 Key Compliance Requirements:

✔ Obtain a Tax Residency Certificate (TRC) to claim DTAA benefits.

✔ File Form 15CA & 15CB before remitting payments.

✔ Deduct & deposit TDS by the 7th of the following month and report in Form 27Q (quarterly TDS return for non-residents).