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Commission payable to foreign agents – Taxability?

Section 195 of the Income tax Act brings an obligation on a resident tax payer making payment to a non resident in respect of an income taxable in India to deduct tax at the rates applicable. But it is a little bit difficult to determine the status of payment like when to consider that the payment is made in India.

Commission paid to a non resident :

Generally many companies and business concerns in India used to appoint some agents in abroad who are non residents , for acting on behalf of them. They will be provided by the agents the services like bringing the orders from abroad and negotiation of prices and many other. And the service recipient company in India used to pay certain percentage of FOB or CIF value as commission to the agent. Here the question arises “whether that payment of export agency commission to a non resident who is providing services outside India is liable to tax or not?”, where the foreign agents has no business connection in India. Here in this case following points play a key role in justifying the necessary course of action by the assessee :

  1. If the non resident agents are operating in their own respective countries and they procure the orders for the assessee from the parties outside India and the commission was paid to them outside India in foreign currency.
  2. If the foreign agents don’t have any business connection nor they have any place of business in India.

Taxability :

If the payments of commission satisfy above-stated points then it is not taxable as per explanation provided by clause (a) of 9(1) of income tax act it doesn’t either accrue or arise in India or deemed to accrue or arise in India since the agents are rendering their services in outside India which is not a taxable territory to India. So that is not taxable in the hands of foreign agents. Recommended Articles

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