I have to make a payment to a law firm in Dubai for advising me on Golden Visa eligibility. Would such payment require TDS (tax deducted at source) and do I have to file Form 15CB while making the payment? Are there any other tax rules that I should keep in mind while making the payment?
—Name withheld on request
The legal fees that you are required to pay to the law firm situated in Dubai would be taxable in India under the provisions of the Income Tax Act, 1961 since such fees would qualify as “fees for technical services”. However, the India-UAE DTAA (double taxation avoidance agreement) may provide benefit in your case if the services have been provided by the law firm directly from Dubai. This is because professional services income does not become taxable in India as per the provisions of the DTAA, if the law firm does not have any presence in India and if it provides the services directly from UAE. To be eligible to avail benefits under the India-UAE DTAA, you have to obtain the tax residency certificate of the UAE law firm, Form 10F filed by them in India and declarations to safeguard yourself (for e.g., declaration of no permanent establishment under DTAA; declaration for satisfying the principal purpose test provision under multilateral instrument, etc.). If you have these requisite documents, then you may not deduct any TDS on their payments.
Coming to further documentation aspects laid down under the Indian tax law, you are required to obtain a CA certificate in Form 15CB if the payments are chargeable to tax under the provisions of domestic tax law and the aggregate payments during the financial year exceed ₹5 lakh. If the payments are not chargeable to tax, then you are only required to furnish information partially under Form 15CA. However, if the remittance pertains to a current account transaction that qualifies under liberalized remittance scheme (LRS) and such payments are not chargeable to tax, then no documentation requirement applies to the case, and, consequently, no information even under Form 15CA is required to be furnished. Since the legal fees are not chargeable to tax under India-UAE DTAA (subject to the conditions mentioned in the previous paragraph), the taxability provisions under the domestic tax law get modified to that extent and one can claim that the payments are not taxable under the provisions of domestic tax law itself. However, in practice, the authorised dealer bank may require you to obtain Form 15CB and/or file Form 15CA before allowing you to make the overseas remittance. Also, please note that since such payment qualifies under LRS, you will have to pay tax collected at source on the amount while making the remittance.
Harshal Bhuta is partner at P.R. Bhuta & Co. Chartered Accountants.
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Published: 26 Mar 2024, 09:38 PM IST