TDS Rate At Time Of Making Foreign Payment

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How to determine applicable TDS Rate on making Foreign Payment:

TDS on foreign payments depends on two conditions. First, whether deductee provides a valid TRC or not?  Second, whether deductee holds a valid PAN in India or not?

Below is the matrix showing applicable TDS rates depending on the availability of TRC & PAN.

TDS RATE ON FOREIGN PAYMENTS
CASES	Whether TRC is available?		Whether PAN is available?		Treatment	Possible Challenges
CASE - A	Yes		Yes		Grossing Up should be done @ DTAA Rate. TDS should be deducted @ DTAA Rate.	NA
CASE - B	No		No		Grossing Up should be done @ applicable IT Act Rate. TDS should be deducted @ applicable IT Act Rate or 20%, whichever is higher.	Foreign Income Tax Authority may decline to give TDS credit in excess of rate prescribed in DTAA.
CASE - C	No		Yes		Grossing Up should be done @ applicable IT Act Rate. TDS should be deducted @ applicable IT Act Rate.	Foreign Income Tax Authority may decline to give TDS credit in excess of rate prescribed in DTAA.
CASE - D	Yes		No		Grossing Up should be done @ DTAA Rate (Bosch Ltd. ITAT Bangalore). TDS should be deducted @ applicable IT Act Rate or 20%, whichever is higher.	Foreign Income Tax Authority may decline to give TDS credit in excess of rate prescribed in DTAA.
Note 1)	IT Act Rates (as mentioned above) has to be increased by Surcharge & Education Cess.
	DTAA rates need not to be increased by Surcharge & Education Cess.
Requirement of TRC for claiming Relief under DTAA
1) TRC became mandatory w.e.f. 01/04/12
2) Format of TRC notified w.e.f. 17/09/12
3) If TRC is not in specified format then a declaration in Form 10F is also mandatory along with the required documents w.e.f. 01/08/13.

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