TDS and 15CA/CB for foreign freelancer payments

TDS and 15CA/CB for foreign freelancer payments

I own an LLP firm and we've hired topic experts from the US for freelance content writing. To give you an idea of what we do, we create content websites making use of the expertise of the writers and then market those websites to foreign countries to make an income out of them. So, 100% of our income comes from foreign sources. We've no employees in India either.

When we make freelancer payments to the US experts, would the same come under Section 9(1)(vii) for FTS (Fees for Technical Services)? If that's the case, doesn't it mean we won't need to pay the 20% TDS that is to be paid while making payments to non-residents? Also, if Section 9(1)(vii) is applicable, do I need to fill up just the D part of 15 CA without filing Form 15CB?

And, is there a chance the nature of our remittance comes under "Payment towards imports-settlement of invoice" in Rule 37BB?

Thanks.

Asked 3 years ago in Income Tax

Hi,

While from the India Income Tax perspective the services would most likely fall within the definition of FTS. However, you have an option to choose the benefit of tax treaty between India and USA which has less stringent definition of FTS and TDS would be applicable @10% if freelancers have pan in India. otherwise, it will be 20%.

As per the tax treaty between India and USA, the services would fall within the definition of FTS only if the services are of such a nature that the knowledge will be made available to the recipient of the services. We need to understand the services in detail to conclude whether knowledge is made available or not. Assuming it doesn't fit within the definition of FTS, only form 15CA would be applicable and you need to get some forms and declaration from the freelancers. further, no tds will be required in this case.

Lakshita Bhandari

CA, Mumbai

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- Explanation 2 to section 9(1)(vii) defines the term "FTS". It means any consideration for the rendering of any managerial, technical or consultancy services. As per this definition, content writing does not fall into any of the category. Now coming to paragraph 4 of Article 12 of India -USA DTAA which specifies the definition of FTS. You may take the benefit of paragraph 4(b) which may attract litigation. The nature of services is Independent personal services which attracts Article 15 of DTAA. Ask TRC from non-resident individuals and give benefit of DTAA. You may also consider Article 23 of DTAA.

- If deductee does not provide details as per rule 37BC(2) then you are liable to deduct TDS @31.2% as per section 195. In such case, deductee should apply for PAN in India and lower TDS deduction certificate. As the content writers are non-resident Individuals, they are liable to pay tax on slab rates applicable to Individuals in India and claim refund if any.

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