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TDS on for online advertising payments to Facebook and Google Ireland.

Facebook and Google are some of the largest ad networks in the world. It is therefore not surprising that Indian businesses would be using them as well. One of the practical problems faced by businesses is that when they make such payements to foreign entities, often based in Ireland  using their credit card they are unable to deduct TDS on such payments. The question is, do they need to deduct TDS or deposit it on their own account in the first place? This opinion concerns facebook in particular.

To explain our opinion on this matter, we shall first try to understand section 195 ( the charging section for payments to non residents ) which states

[su_quote] “ ..any person responsible for paying to a non resident, not being a company, or to a foreign company any interest or any other sum chargeable under the provisions of this act shall at the time of such credit of such income to the account to the payee or at the time of the payment thereof in cash or …..deduction income tax thereon at the rates in force”[/su_quote]

The keyword here is “Sum chargeable under the provisions of this act” or income, as defined in the act.

Now income deemed to accrue or arise in India is defined by section 9 of the act. Now the explanation to section 9(1) states

[su_quote]“For the purposes of this clause – (a) In the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India” [/su_quote]

Now let us go back to our case where we are making payments online, to “facebook Ireland” for “facebook ads”, which may be seen not just in India but anywhere in the world ( based on certain keywords).

In the instant case, no element of the performance of the requested service ( advertising) is executed in India, the said income cannot be attributed to the operations of facebook in India and due to the lack of a PE in India of the entity no tax is applicable on the said income in India.

This would imply that no TDS needs to be deducted on such payments from India

 More information on TDS may be found here

Update : This opinion has been upheld by the Mumbai ITAT in Pinstorm Technologies Pvt. Ltd. Vs ITO, wherein it was held that TDS was not deductible on payments to Google Ireland.

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