Tax Deduction at Source under section 195 of Income Tax Act

Section 90(4) of the Act requires every non-resident desirous to claiming DTAA benefit to furnish a TRC (Tax Residence Certificate) issued by the Government of his country of residence.

Section 90(5) read with Rule 21AB of the Rules 21AB of the Rules, further requires the payee to furnish the following information in the prescribed form No.10F to the extent such information is not covered in the TRC:

  • Status of the assessee
  • Permanent Account Number (‘PAN’) of the assessee if allotted
  • Nationality or country or specified territory of incorporation or registration
  • Assessee’s tax identification number in the country of residence
  • Period for which the residential status as mentioned in the TRC is applicable
  • Address of the assessee in the country of residence

 

Aids to determine taxability of the Remittance and the applicable TDS

Documentary:

  • Agreement(s)/Contract(s) underlying the transaction
  • Invoice(s)/Debit Notes being paid
  • Other correspondence between the parties, for determining the exact nature of the payment
  • A visit to the non-resident’s website to see how they have described their India office operations.
  • Copy of payee’s TRC for the relevant period and form 10F (See sub-rule (1) of rule 21AB)
  • In case of TRC for the relevant period has yet to be received, a copy of the application filed by the payee for obtaining the same and details of the payee’s tax identification or other unique numbers in the country of tax residence.
  • Written confirmation from the payee that:
    • It was a tax resident of the country of residence during the relevant period and is eligible for the benefits of the applicable DTAA (this may be obtained where the payee has provided a copy of the past period’s TRC and the TRC of the relevant period has yet to be received)
    • It is the beneficiary of the sum being remitted
    • It does not have a PE in India within the meaning of the applicable DTAA

 

  • Order/certificate obtained, if any, under section 195(2), 195(3), 197 of the Act
  • SBI’s certificate providing the required TT buying rates

 

 

Legal:

  • Provision of the Act
  • Provisions of the applicable DTAA (including protocol, MFN and LOB clauses, if any)
  • Judicial precedents
  • Commentaries – OECD Model Tax Convention and UN Model
  • Commentaries – renowned authors

Surcharge and education cess should not be added to the rate specified under the DTAA

Article 2 of the most of the DTAAs provides that income-tax shall also include surcharges thereon, Thus the tax rate under the DTAA is all inclusive i.e. surcharge, educational cess are already included and are not to be separately added. A similar proposition has been upheld in the following decisions:

Some of the relevant provisions of Income Tax Act and Rules are listed below

2(37A)(iii)

iii)   for the purposes of deduction of tax under 28[section 194LBA or]28a[ section 194LBB or section 194LBC orsection 195, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in 29[an agreement entered into by the Central Government under section 90, or an agreement notified by the Central Government undersection 90A, whichever is applicable by virtue of the provisions of section 90, or section 90A, as the case may be];]

[Agreement with foreign countries or specified territories.

90. (1) The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India,—

(a)   for the granting of relief in respect of—  
(i)   income on which have been paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be, or  
(ii)   income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or  
(b)   for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, or
(c)   for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corres-ponding law in force in that country or specified territory, as the case may be, or investigation of cases of such evasion or avoidance, or
(d)   for recovery of income-tax under this Act and under the corresponding law in force in that country or specified territory, as the case may be,

and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement.

(2) Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.

[(2A)Notwithstanding anything contained in sub-section (2), the provisions of Chapter X-A of the Act shall apply to the assessee even if such provisions are not beneficial to him.]

(3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification21a issued by the Central Government in the Official Gazette in this behalf.

[(4) An assessee, not being a resident, to whom an agreement referred to in sub-section (1) applies, shall not be entitled to claim any relief under such agreement unless 23 [a certificate24 of his being a resident] in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory.]

[(5) The assessee referred to in sub-section (4) shall also provide such other documents and information, as may be prescribed26 .]

Explanation 1.—For the removal of doubts, it is hereby declared that the charge of tax in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company.

Explanation 2.—For the purposes of this section, “specified territory” means any area outside India which may be notified27 as such by the Central Government.]

28 [Explanation 3.—For the removal of doubts, it is hereby declared that where any term is used in any agreement entered into under sub-section (1) and not defined under the said agreement or the Act, but is assigned a meaning to it in the notification issued under sub-section (3) and the notification issued thereunder being in force, then, the meaning assigned to such term shall be deemed to have effect from the date on which the said agreement came into force.]

 

 

  1.  in the Official Gazette, make such provisions as may be necessary for implementing the agreement.

(2) Where the Central Government has entered into an agreement with the Government of any country outside India under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.

(3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf.

Explanation.—For the removal of doubts, it is hereby declared that the charge of tax in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company.

 

“(2A) Notwithstanding anything contained in sub-section (2), the provisions of Chapter X-A of the Act shall apply to the assessee, even if such provisions are not beneficial to him.”

 

[Furnishing of information for payment to a non-resident, not being a company, or to a foreign company.

37BB . (1) The person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum chargeable under the provisions of the Act, shall furnish the following, namely:—

(i)   the information in Part A of Form No.15CA, if the amount of payment or the aggregate of such payments, as the case may be, made during the financial year does not exceed five lakh rupees;
(ii)   for payments other than the payments referred in clause (i), the information,—
(a)   in Part B of Form No.15CA after obtaining,—  
(I)   a certificate from the Assessing Officer under section 197; or  
(II)   an order from the Assessing Officer under sub-section (2) or sub-section (3) of section 195;  
(b)   in Part C of Form No.15CA after obtaining a certificate in Form No. 15CB from an accountant as defined in the Explanation below sub-section (2) of section 288.  

(2) The person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum which is not chargeable under the provisions of the Act, shall furnish the information in Part D of Form No.15CA.

(3) Notwithstanding anything contained in sub-rule (2), no information is required to be furnished for any sum which is not chargeable under the provisions of the Act, if,—

(i)   the remittance is made by an individual and it does not require prior approval of Reserve Bank of India as per the provisions of section 5 of the Foreign Exchange Management Act, 1999 (42 of 1999) read with Schedule III to the Foreign Exchange (Current Account Transaction) Rules, 2000; or
(ii)   the remittance is of the nature specified in column (3) of the specified list below:

SPECIFIED LIST

Sl. No. Purpose code as per RBI Nature of payment
(1) (2) (3)
1 S0001 Indian investment abroad – in equity capital (shares)
2 S0002 Indian investment abroad – in debt securities
3 S0003 Indian investment abroad – in branches and wholly owned subsidiaries
4 S0004 Indian investment abroad – in subsidiaries and associates
5 S0005 Indian investment abroad – in real estate
6 S0011 Loans extended to Non-Residents
7 S0101 Advance payment against imports
8 S0102 Payment towards imports – settlement of invoice
9 S0103 Imports by diplomatic missions
10 S0104 Intermediary trade
11 S0190 Imports below Rs.5,00,000 – (For use by ECD offices)
12 SO202 Payment for operating expenses of Indian shipping companies operating abroad
13 SO208 Operating expenses of Indian Airlines companies operating abroad
14 S0212 Booking of passages abroad – Airlines companies
15 S0301 Remittance towards business travel
16 S0302 Travel under basic travel quota (BTQ)
17 S0303 Travel for pilgrimage
18 S0304 Travel for medical treatment
19 S0305 Travel for education (including fees, hostel expenses etc.)
20 S0401 Postal services
21 S0501 Construction of projects abroad by Indian companies including import of goods at project site
22 S0602 Freight insurance – relating to import and export of goods
23 S1011 Payments for maintenance of offices abroad
24 S1201 Maintenance of Indian embassies abroad
25 S1202 Remittances by foreign embassies in India
26 S1301 Remittance by non-residents towards family maintenance and savings
27 S1302 Remittance towards personal gifts and donations
28 S1303 Remittance towards donations to religious and charitable institutions abroad
29 S1304 Remittance towards grants and donations to other Governments and charitable institutions established by the Governments
30 S1305 Contributions or donations by the Government to international institutions
31 S1306 Remittance towards payment or refund of taxes
32 S1501 Refunds or rebates or reduction in invoice value on account of exports
33 S1503 Payments by residents for international bidding.

(4) The information in Form No. 15CA shall be furnished,—

(i)   electronically under digital signature in accordance with the procedures, formats and standards specified by the Principal Director General of Income-tax (Systems) under sub-rule (8) and a thereafter printout of the said form shall be submitted to the authorised dealer, prior to remitting the payment; or
(ii)   electronically in accordance with the procedures, formats and standards specified by the Principal Director General of Income-tax (Systems) under sub-rule (8) and thereafter signed printout of the said form shall be submitted to the authorised dealer, prior to remitting the payment.

(5) An income-tax authority may require the authorised dealer to furnish the signed printout of Form No.15CA referred to in clause (ii) of sub-rule (4) for the purposes of any proceedings under the Act.

(6) The certificate in Form No. 15CB shall be furnished and verified electronically in accordance with the procedures, formats and standards specified by the Principal Director-General of Income-tax (Systems) under sub-rule (8).

(7) The authorised dealer shall furnish a quarterly statement for each quarter of the financial year in Form No.15CC to the Principal Director General of Income-tax (Systems) or the person authorised by the Principal Director General of Income-tax (Systems) electronically under digital signature within fifteen days from the end of the quarter of the financial year to which such statement relates in accordance with the procedures, formats and standards specified by the Principal Director General of Income-tax (Systems) under sub-rule (8).

(8) The Principal Director General of Income-tax (Systems) shall specify the procedures, formats and standards for the purposes of furnishing and verification of Form 15CA, Form 15CB and Form 15CC and shall be responsible for the day-to-day administration in relation to the furnishing and verification of information, certificate and quarterly statement in accordance with the provisions of sub-rules (4), (6) and (7).

Explanation.— For the purposes of this rule ‘authorised dealer’ means a person authorised as an authorised dealer under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999).]

 


1 [Relaxation from deduction of tax at a higher rate under section 206AA.

37BC. (1) In the case of a non-resident, not being a company, or a foreign company (hereafter referred to as ‘deductee’) and not having permanent account number the provisions of section 206AA shall not apply in respect of payments in the nature of interest, royalty, fees for technical services and payments on transfer of any capital asset, if the deductee furnishes the details and the documents specified in sub-rule (2) to the deductor.

(2) The deductee referred to in sub-rule (1), shall in respect of payments specified therein, furnish the following details and documents to the deductor, namely:—

(i)   name, e-mail id, contact number;
(ii)   address in the country or specified territory outside India of which the deductee is a resident;
(iii)   a certificate of his being resident in any country or specified territory outside India from the Government of that country or specified territory if the law of that country or specified territory provides for issuance of such certificate;
(iv)   Tax Identification Number of the deductee in the country or specified territory of his residence and in case no such number is available, then a unique number on the basis of which the deductee is identified by the Government of that country or the specified territory of which he claims to be a resident.]
  1. Rule 37BC inserted by the Income-tax (Seventeenth Amendment) Rules, 2016, w.e.f. 24-6-2016.

 

34 [ Certificate for claiming relief under an agreement referred to in sections 90 and 90A .

21AB . 34a [ (1) Subject to the provisions of sub-rule (2), for the purposes of sub-section (5) of section 90 and sub-section (5) of section 90A, the following information shall be provided by an assessee in Form No. 10F, namely:—

(i)   Status (individual, company, firm etc.) of the assessee;
(ii)   Nationality (in case of an individual) or country or specified territory of incorporation or registration (in case of others);
(iii)   Assessee’s tax identification number in the country or specified territory of residence and in case there is no such number, then, a unique number on the basis of which the person is identified by the Government of the country or the specified territory of which the asseessee claims to be a resident;
(iv)   Period for which the residential status, as mentioned in the certificate referred to in sub-section (4) of section 90 or sub-section (4) of section 90A, is applicable; and
(v)   Address of the assessee in the country or specified territory outside India, during the period for which the certificate, as mentioned in (iv) above, is applicable.

(2) The assessee may not be required to provide the information or any part thereof referred to in sub-rule (1) if the information or the part thereof, as the case may be, is contained in the certificate referred to in sub-section (4) of section 90 or sub-section (4) of section 90A.

(2A) The assessee shall keep and maintain such documents as are necessary to substantiate the information provided under sub-rule (1) and an income-tax authority may require the assessee to provide the said documents in relation to a claim by the said assessee of any relief under an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A, as the case may be. ]

(3) An assessee, being a resident in India, shall, for obtaining a certificate of residence for the purposes of an agreement referred to in section 90 and section 90A, make an application in Form No. 10FA to the Assessing Officer.

(4) The Assessing Officer on receipt of an application referred to in sub-rule (3) and being satisfied in this behalf, shall issue a certificate of residence in respect of the assessee in Form No. 10FB. ]

 

 

 

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