CBDT relaxes rules for TDS claims by non-resident companies

They can now claim benefits of tax treaty by just providing personal details such as name, address and tax residency certificate, even without providing PAN

Non-resident companies can now claim benefits of tax treaty by just providing personal details including, name, address and tax residency certificate, even without providing PAN.

The Central Board of Direct Taxes (CBDT) has come out with Rule 37BC, which gives relaxation to non-residents from furnishing PAN number in India while claiming TDS benefits. Non-residents include foreign partnership, foreign body corporates, besides foreign companies.

It said in the absence of PAN, a non-resident can now provide the prescribed information and will not be subject to higher rate of withholding tax on payments made by Indian companies for interest, royalty, fees for technical services.

Non-residents can now claim the beneficial provisions of the tax treaty by providing personal details - name, email-id, address etc; Tax Residency Certificate (TRC) and Tax Identification Number (TIN) or any other Unique Identification number obtained in the country of residence.

"Non-residents can now take a sigh of relief, since the beneficial provision of the amended Section 206AA has become operational and treaty benefits shall not be denied by the tax authorities in the absence of PAN. Now a non-resident can claim the beneficial provisions of the tax treaty by providing his personal details," said Rakesh Nangia, Managing partner, Nangia & Co.

Section 206AA of I-T Act provides that in absence of PAN, the payer shall be liable to withhold taxes at the rate of 20 per cent or the rate of tax as per the Act or that as per tax treaty (whichever is higher) while making payment to a non-resident. Obtaining a PAN was thus made mandatory for every non-resident, causing hardship.

Section 206AA was amended in the last Budget to provide that higher rate of TDS shall not apply to any payment made to non-residents, provided certain conditions are satisfied.

In order to give meaning and application to the amended provision of section 206AA, CBDT has inserted new Rule 37BC.

KPMG (India) Partner Tax Vikas Vasal said the rule provides the much-needed clarity.

Vasal, however, said that since the transactions between foreign and Indian companies are increasing, the requirement of furnishing the TRC should be re-evaluated, and instead the TIN of the foreign company along with other information may be considered as sufficient compliance.

"In the case of a non-resident...Or a foreign company, and not having permanent account number (PAN) 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 to the deductor," the CBDT Rules said.

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The Central Board of Direct Taxes said the declaration should be accompanied by proof of tax payment and deposit made, adding that taxes paid under the scheme will not be refundable under any circumstances.
"A declarant under this scheme shall not be entitled in respect of undisclosed income or any amount of tax and surcharge paid thereon, to re-open any assessment or reassessment made under the Income Tax Act or the Wealth tax Act 1957, or to claim any set-off or relief in any appeal," it said.
The person making a declaration under the scheme will be liable to pay tax at the rate of 30 per cent of the undisclosed income as increased by surcharge to be called the Pradhan Mantri Garib Kalyan Cess calculated at 33 per cent of the tax. In addition, penalty at the rate of 10 per cent of the undisclosed income will be payable.

CBDT said the declaration under the scheme may be made in respect of any income in the form of cash or deposit in an account maintained by the person with a specified entity, chargeable to tax under the Income-Tax Act for any assessment year commencing on or before April 1, 2017.
No deduction in respect of any expenditure or allowance or set-off of any loss will be allowed against the income in respect of which a valid declaration is made under the scheme.
"A declaration under the scheme can be made anytime on or after December 17, 2016, but on or before March 31, 2017. The tax, surcharge and penalty payable under the scheme and deposit to be made... Shall be paid/made before filing of the declaration," it said.

The declaration to the Principal Commissioner or the Commissioner of Income Tax can be done electronically under digital signature or in print. The tax authorities will issue a certificate to the declarant within 30 days from the end of the month in which a valid declaration has been furnished.
Not declaring the blackmoney under the scheme now but showing it as income in the tax return form would lead to a total levy of 77.25 per cent in taxes and penalty. In case the disclosure is not made either using the scheme or in return, a further 10 per cent penalty on tax will be levied followed by prosecution.