Hi, I have a software company registered in India and we have a firm in USA whom we have hired to get some services work (technical and sales) to be done onsite at USA. My question is if they raise a bill of say 10k USD, what will be tax implications and any other compliances will we have to comply with. Also, do we in India will have to pay GST on this 10K USD payment done and under what head will this expense go in out books. Note, that we do not have any presence legal outside India.
Hello
Please find below response
1. If USA Company raise an invoice to Indian company of USD 10K, Indian company will have to withhold tax if its for the professional services / Technical Service and if they are raising invoice under business support service than no withholding tax is required
2. Indian company need to pay GST under reverse charge as import of service
Dear Sir,
In reference to your query please note that based on the facts given, this transaction seems to fall under the category of import of Services under GST, and as such tax under RCM would apply on you. However. you will be eligible to avail ITC of the same.
Please connect in case of any further details required to be discussed.
Thanks & Regards,
CA Aditya Dhanuka.
https://www.linkedin.com/in/aditya-dhanuka-69824451/
No GST needs to be paid but TDS applicability is there
Hello,
If the services provided by the USA company are considered an import of services under GST laws in India, the Indian company required to pay GST under the reverse charge mechanism.
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Shubham Goyal
What is the actual nature of service which is mentioned in the agreement and invoice?
Do you have Tax residency certificate and No PE certificate from the US company?
Yes you might have to pay GST under reverse charge on such 10k amount as import of service.
It will be in the head and nature of service that you are taking from them.
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Thank you.
Under GST, it would be treated as import of services and GST @18% is payable on reverse charge mechanism. Company is eligible to claim ITC of GST payable on paid basis
Under Income tax, such services would be classified as fees for technical services and Company would be liable to deduct TDS on payment to non-resident . Rate of TDS under the Income tax Act is 20.8% and under DTAA between India-USA it is 10%. To avail the benefit of rate of TDS under DTAA deductee should submit the TRC (Tax residency certificate) to the deductor containing following details
- Status of the deductee (Individual, Company, Firm etc.)
- Nationality (in the case of individual) or country of incorporation or registration (in case of others)
- Name, email id, contact number
- Address in the country outside India of which the deductee is a resident
- Tax Identification Number of the Deductee in the country of his residence and in a case no such number then a unique number on the basis of which the deductee is identified by the government of that country of which he claims to be a resident
- Period for which the residential status is applicable
- After deduction of TDS, Company is required to submit Form 15CA and Form 15CB to the bank to make foreign remittance to non-resident
- File TDS return (Form 27Q- For non-resident) on quarterly basis and provide TDS certificate to the non-resident firm
- For accounting, you can post this expense under the head "Technical Consultancy". Prepare separate group for Import and export transactions so that Auditor can easily vouch them and comply with the reporting requirements in the financial statements
For detailed discussion you may opt for phone consultation
In this case if my consultant in USA, say wants an inhand receipt of 100 USD (does not wants to get into any tax overheads) then what will be the amount he should raise to me as taxes will come to my side? What I understand is its like 10% TDS, 18% GST and then he is also in bracket of USA personal taxes of 25%.
- GST@18% would be payable by Co. only and available as ITC on paid basis. There is no requirement of deduction/recovery of GST amount from the remittance amount payable to non-resident.
- In respect to TDS deduction you can gross up the amount (i.e. 100/90*100=111.11). Net payable would be 100USD
For detailed discussion you may opt for phone consultation
So typically gst is something you will pay in India and get credit and US taxation is on consultant scope your job is to transfer net 100 USD to consultant and to do that you only need to gross up withholding tax.
Meaning therrby if there is tds of 10%.
Expenses booked in your accounts will be 111 out of which 11 will be TDS and you can remit back 100 USD to consultant
Need more information on my questions to give a better answer.
As an Indian software company hiring services from a firm in the USA, there are tax implications and compliance considerations to keep in mind. Here is some general information, but it is always advisable to consult with a qualified tax professional or chartered accountant for accurate guidance tailored to your specific situation:
Tax Implications:
a. In India: The payment you make to the US firm for their services will be considered an expense for your Indian company. It will be deductible as a business expense, reducing your taxable income and ultimately impacting your income tax liability.
b. In the USA: The US firm providing the services may have tax obligations in their country. It is their responsibility to comply with US tax laws and report the income they receive from your Indian company
Goods and Services Tax (GST) in India:
a. Export of Services: Generally, export of services from India is considered as zero-rated supply under GST, meaning no GST is levied on the services exported. You may need to ensure that the services you receive from the US firm qualify as export of services under Indian GST laws. Proper documentation and compliance with GST regulations are necessary to claim the zero-rated benefit.
b. Input Tax Credit (ITC): Since you are not liable to pay GST on the services received from the US firm, you will not be eligible to claim input tax credit on such services.
Bookkeeping and Expense Classification:
a. Expense Head: The payment made to the US firm can be categorized as "Professional Fees" or "Consultancy Fees" in your books of accounts, depending on your specific accounting practices and chart of accounts.
It is important to maintain proper documentation, including invoices, agreements, and records of the services received, for future reference and tax audits.
Hi one needs to understand exactly what is the nature of services and the agreement for the services. The services could be treated as technical services or business services depending on their underlying nature. Even if its technical service, the same may not be taxable if the knowledge is not made available to you.
GST would be payable on reverse charge basis.
Kindly reach out for detailed consultation.
