Revised Forms 15CA and 15CB—Changes and Impact

Forms 15CA and 15CB, which were introduced in this regard, created contentious issues for practitioners and the Income-tax Department. The procedure was that for making a payment to a non-resident or a foreign company, the person making the remittance was required to obtain the certificate of a Chartered Accountant in Form 15CB, submit Form 15CA online based on the same, and finally submit both these documents to his bankers to complete the transaction. On 5th August 2013, CBDT issued Notification No. 58/2013 amending Rule 37BB and these forms with effect from 1st October, 2013. However, soon thereafter, on 2nd September 2013, CBDT amended Rule 37BB and the forms further by way of Notification No. 67/2013, again with effect from 1st October, 2013.

This article intends to highlight the changes in the reporting requirements and the impact of the same.

Changes in reporting
Hitherto, Forms 15CA and 15CB were required to be furnished by the person making the remittance to a non-resident, not being a company, or a foreign company, for every payment—irrespective of the quantum or the taxability of such payment. Rule 37BB, as amended by the two notifications referred above, provides certain relaxations in the reporting requirements based on the quantum and nature of payment. The changes are summarised in the table below:

•    Indian investment abroad in equity/debt/branches and wholly owned subsidiaries/subsidiaries and associates/ real estate
•    Loans to non-residents
•    Operating expenses of Indian shipping /airline companies operating abroad
•    Booking of passages abroad—airlines companies
•    Business travel, travel under basic travel quota, travel for pilgrimage, medical treatment, education
•    Postal services
•    Construction of projects abroad by Indian companies
•    Freight insurance relating to import and export of goods
•    Maintenance of offices/Indian embassies abroad
•    By foreign embassies in India
•    By non-residents towards family maintenance and savings
•    Personal gifts and donations, donations to religious and charitable institutions abroad, grants and donations to other Governments and charitable institutions established by the Governments, donations by Indian Government to international institutions
•    Payment or refund of taxes
•    Refunds or rebates on exports
•    By residents on international bidding

Note 2: The following items appeared in the specified list as per Notification No. 58, but are missing in the superseding Notification No. 67:

•    Payment for life insurance premium
•    Other general insurance premium
•    Payments on account of stevedoring, demurrage, port-handling charges etc.
•    Freight on imports—airline companies
•    Booking of passages abroad—shipping companies
•    Freight on exports—shipping companies
•    Freight on imports—shipping companies
•    Payments for surplus freight or passenger fare by foreign shipping companies operating in India.
•    Imports by diplomatic missions
•    Payment towards imports—settlement of invoice
•    Advance payment against imports

Impact and Issues

It is clear that the revised procedures for making remittances to non-residents seek to reduce the burden of compliance in several cases—where payments fall under the specified list, which are not liable to tax in India or where the remittances are very small in quantum. Furthermore, in cases where the proposed reporting is as extensive as the existing requirements, these amendments seek to capture much more information, thereby casting more onerous duty on the remitter as well as the Chartered Accountant issuing the certificate in Form 15CB. The revised Form 15CB and Part B of the revised Form 15CA attempt to capture nearly the entire process of determination of taxability of a cross-border payment. In doing so, however, the amendments leave several existing issues unanswered and also manage to raise new concerns. Some of these concerns are outlined below:

Persisting Issues:

i)    Personal Payments:

Section 195 places a burden on any person making payments to non-residents for personal expenses such as online purchases, paid downloads, etc. It is impractical for the payer either to obtain a Tax Deduction Account Number (TAN) or to undertake the procedures under Rule 37BB in order to comply with these provisions. While carving out several transactions from the reporting net, payments of personal nature other than gifts or donations have been left out of the specified list.

ii) Payments to non-residents operating in India:

The obligation to deduct tax at source or to furnish details in Form 15CA are in respect of payments made to non-residents irrespective of whether such payments involve any outward remittance or not. As a consequence, one faces difficulties in making payments in Indian rupees to non-residents who are operating in India. For instance, a person banking with the Indian branch of a foreign bank ends up paying a foreign company every time his bank charges him for services provided. This in turn implies that he must comply with Section 195 read with Rule 37BB while making such “payments”.

iii) Credit Card Payments:

Rule 37BB, as it stood before the amendment, as also the revised Rule 37BB require the details in Form 15CA to be furnished prior to making the remittance. However, in the age of e-commerce, electronic payments through credit cards and net transfers have become the order of the day. In such cases, it becomes difficult for the payer as well as the remitting bank to ensure compliance with the prescribed procedures.

iv) ECS/Auto debits:

Similar to credit card payments, it is near impossible to single out the payments made by way of system generated Auto Debits and ECS. Clarity is required on the issue of how details are required to be furnished in such cases and whether monthly compliance would be required.

Added Concerns:

i)  Sums not chargeable to tax:

The language of the revised Rule 37BB clearly spells out that it would apply in respect of remittances made for sums which are chargeable to tax under the Income-tax Act. This is a deviation from the language of Rule 37BB prior to Notification No. 58 and especially from the language used in Notification No. 58. This leads to an inference that the revised procedure is not applicable in cases where the payments are not liable to tax in India. However, the notification lists 28 specific types of payments for which no information is required to be furnished. This may lead to an interpretation that all payments not falling within that list but which are not chargeable to tax in India would call for furnishing some information, either limited or extensive.

ii) Small payments:

Small payments of upto Rs. 50,000 individually or aggregating to Rs. 2,50,000 in the financial year have limited reporting requirements in Part A of Form 15CA. Accordingly, if one were to make a lumpsum payment exceeding the individual limit of Rs. 50,000 to a non-resident or a foreign company without crossing the annual limit of Rs. 2,50,000, it would attract the reporting in Part B of the Form. This would result in unintended consequences, foiling the intent to reduce the compliance burden for small payments.

iii) Difference in opinion on taxability:

If the revised Rule 37BB is not to apply to payments, which are not liable to tax in India, the same would present practical difficulties in application of the revised procedure. There could be a difference of opinion between the remitter and the authorised dealer on the taxability of a particular remittance. In the absence of any consensus, the authorised dealer may end up insisting on Form 15CA from the remitter before making a payment, while in the view of the latter, the same is not required.

iv) Import payments:

While payments for imports are considered not taxable in India in a vast majority of cases, this issue in not dealt with in the revised Rule 37BB, which otherwise exempts several types of payments from reporting requirements. In fact, in the proposed Rule 37BB as per Notification No. 58, the specified list consisted of import payments, thereby casting lesser obligations on such remittances. Deletion of imports from the specified list now creates even further ambiguity.

v) Capital Gains:

Section 195(2) is very clear that in case where only a part of the payment made to the non-resident or foreign company is liable to tax, the payer must make an application to the Assessing Officer (AO) for determination of that portion of the remittance which is taxable. The Supreme Court in the case of GE India Technology Centre Private Limited has held that the payer cannot by himself determine the taxability of such amount. Typical instances where 195(2) would get triggered and hence, an application to the AO would be required, include business income taxable in India or capital gains.

However, the revised Form 15CB requires the sum of long term and short term capital gains to be reported along with the manner of determination of the capital gains. This would imply that a Chartered Accountant can certify quantum of tax to be deducted from capital gains. This runs counter to the current interpretation of 195(2). As a consequence, it appears that the revised Form 15CB casts the duty of computation of capital gains income on the Chartered Accountant and a remittance/payment can be made to the payee on the basis of his certificate without making an application to the AO.

vi) Instructions by the RBI:

Currently, Rule 37BB does not require the details to be furnished to the authorised dealer. In fact, the requirement to submit Form 15CA accompanied with Form 15CB prior to making remittance is a mandate given by the RBI to the authorised dealers. The revised Rule 37BB(3) puts the onus on the authorised dealers for gathering of the information as well as retaining it, since an income-tax authority is entitled to call upon the authorised dealers to furnish a signed printout. Since the obligation cast under the Income-tax Act supersedes the instructions of the RBI, the revised requirements would need to be notified by the RBI. In the absence of notification by the RBI, the authorised dealers would be confused as to whether the process prescribed by Rule 37BB, the RBI or both is to be followed.

vii)    Hasty implementation:

The amendments to the procedures are sought to be implemented at a very short notice. The original Notification was issued on 5th August, 2013 followed by the Notification No. 67 issued on 2nd September, 2013. Both these notifications seek to usher in the new requirements with effect from 1st October, 2013. Considering that this is a very short-time frame, the existing system may not be geared for the changes. Further, if the RBI does not issue corresponding directions by 1st October 2013, implementation of the amendments would go haywire.

viii)  AD to furnish details to income-tax authority:

Apart from specifically requiring the details to be furnished to the authorised dealers, the revised Rule 37BB also places a cumbersome burden on them to produce the documents submitted to them if required by any income-tax authority during the course of any proceedings under the Act. This would place the authorised dealers under the duty to maintain the documents for a very long period of time.

Conclusion

The recent amendments in Rule 37BB intend to reduce the compliance burden on the remitter and the authorised dealers and facilitate more information for the income-tax authorities. However, two hurried amendments, followed by super-rapid implementation without addressing the lacunae could end up negating the intended benefits of the amendments to all concerned.