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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Direct Tax Laws & International Taxation

Case: Kaveri Textiles Pvt Ltd, an Indian company, pays Rs 12,00,000 as fees for technical services to a non-resident, Hanson GmbH, which has no permanent establishment in India. The fees are taxable in India as fees for technical services under the Act. The same payment is also a supply attracting GST on reverse charge, but that is not the point here. For the income tax compliance, which statement follows from the case facts?

Kaveri Textiles must deduct tax under section 195, because the fees for technical services are chargeable to tax in India in the non-resident's hands. Absence of a permanent establishment does not exempt the payment under domestic law, and PAN or a Rs 50 lakh threshold does not remove the obligation.

  1. AKaveri Textiles must deduct tax at source under section 195 because the sum is chargeable to tax in India in the hands of a non-residentCorrect
  2. BNo tax deduction is needed because Hanson GmbH has no permanent establishment in India
  3. CTax deduction is needed only if Hanson GmbH has a PAN
  4. DTax deduction is needed only if the payment exceeds Rs 50 lakh

Explanation

Section 195 requires any person paying a non-resident a sum chargeable to tax in India to deduct tax at the applicable rate. Taxability of fees for technical services does not depend on a PE under domestic law. Hence the absence of a PE does not remove the TDS obligation, and the payer cannot rely on a monetary threshold or PAN to avoid deduction.

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