PAYMENT TO FOREIGN PARTY

Making foreign payments are very frequent in nature, but before making any foreign payment you must keep in mind the compliances under various laws such as:

1. Under Income Tax Laws: 

Section 195 of the Income Tax Act requires to deduct TDS if the sum payable is taxable in India. To know this you must check Section 5, 6 and 9 of the Income Tax Act along with section 195 to get the clear picture.

Deciding at what rate you should deduct TDS, is also a crucial task. For this, you must check the DTAA [Double Taxation Avoidance Agreement] between India and the Country where you remitting the funds. 

Apart from TDS liability and its TDS return filing, you must also intimate the tax authority by filing form 15 CA and 15 CB [CA Certificate]. However, there are certain notified transactions where you are not required to report such transactions [Rule 37 BB of Income Tax Rules].

The wording of section 195 is so wide that it covers almost each and every foreign payment barring few notified transactions. So, make sure, you must comply with all requirements to avoid unnecessary tussle.

2. Under GST Law: 

Payment in respect of Import of service requires the compliance of paying GST under reverse charge under section 9(4) of the CGST Act. It is a notified service as per the notification issued under Section 9(4) of the CGST Act.

3. Equalisation levy: 

Equalisation levy is tax charged on payments made to a foreign party [which does not have a permanent establishment in India] for advertising purpose. It was introduced in Finance Act 2016. Section 165 specifies to deduct 6% of the amount of consideration. However, if the aggregate amount of consideration does not exceed 1 Lakh, then Equalisation levy shall not be charged. Since equalization levy is a self-contained code, so once you cover under this, then you are required to comply with section 195.