INCOME PAYABLE NET OF TAX – SECTION 195A

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INCOME PAYABLE NET OF TAX – SECTION 195A

Net of tax arrangements are agreements, where, TDS deductible on any given income in India is to be borne by Payor,  under an agreement or other arrangement with the Non-resident. In such cases, for deducting TDS, income which is payable under the agreement shall be increased to such amount,  as would, after deduction of tax thereon, be equal to the net amount payable under such agreement or arrangement .

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TDS COMPUTATION IN CASE OF GROSSING UP OR NET OF TAX ARRANGEMENT : –

STEP 1 :

Calculate the grossed-up amount

Amount to be paid   X  100

(100-Rate of TDS)

STEP 2 :

Rate of TDS X Amount calculated in Step 1

Net of Tax Payment – Example 

 

ICO has to pay royalty of Rs 90,000 to FCO. However, as per the agreement income is payable net of tax , i.e, TDS would be borne by ICO.  Rate of TDS as per IT Act is 10%. Calculate the amount of TDS ?

SOLUTION : –

In such a case, the TDS would be calculated as under :

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ParticularsAmount
Grossed-up amount (90,000/90%)1,00,000
TDS (1,00,000* 10%)10,000
Amount to be paid to FCO90,000

 

NOTE : –

No grossing up is required in the case of tax paid under section 192(1A), by an employer on the non-monetary perquisites provided to the employee.

Net of tax arrangements could be applicable for various payments to non-residents. Some of the most common arrangement are as under : –

  • Arrangement for payment of royalties;
  • Arrangement for payment of fee for technical services, net of tax ;
  • Arrangement for payment of interest ;

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