Every resident payer has a question as to “what is the procedure for making payments to a non-resident?” This question is relevant even for non-resident payer as the obligation for withholding tax1 is cast on every payer (whether resident of India or not) if the income in the hands of the recipient is taxable in India. Recently, CBDT has amended the procedure w.e.f. 1st April, 2016 for issuance and submission of Form 15CA and 15CB which facilitates remittance of money to a non-resident person. This article highlights the salient features of the new procedure for making payment to a non-resident.
1. Purpose of section 195
Section 195 of the Act is a mechanism to deduct tax from any payment (which is chargeable to tax) made to a nonresident. The underlying philosophy behind any withholding tax provisions is “pay as you earn”. The ease and certainty of collection of taxes make such provisions attractive for any tax legislature.
2. Person responsible to deduct tax at source u/s. 195 of the Act
Section 195 casts an obligation on the person who is making any payment to a non-resident to deduct tax at source. The sweeping language of the section brings almost every payment, made to a non-resident, which is chargeable to tax, within its ambit. The only exclusion here is that of a payment of salaries. Section 192 of the Act deals with TDS provisions relating to salary paid to a non-resident, which is chargeable to tax in India.
Section 195 provides that, “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 the Act (not being income chargeable under the head “salaries”) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.”
The dissection of the above provision reveals that—
(i) The obligation to deduct tax at source is cast on every person making payment, be it individual, company, partnership firm, Government or a public sector bank etc. The term ’person’ as defined in section 2(31) of the Act is relevant here.
(ii) The payee may be any type of entity (i.e. individual, company etc.).
(iii) The payee must be a non-resident under the Act.
(iv) The payment may be for interest or any other sum chargeable to tax except salaries.
(v) Tax has to be deducted at source at the time of credit or payment of the sum to the non-resident, whichever is earlier.
(vi) There is no threshold for deduction of tax at source. It therefore means payment of even one rupee to a nonresident would attract TDS provisions.
3. TDS by a non-resident from payments to another non-resident
This issue had come up for examination in some landmark cases; notable amongst them is the Apex Court’s decision in case of Vodafone International Holdings B.V. vs. Union of India, wherein the Supreme Court held in favour of Vodafone and held that indirect transfer of shares2 by one non-resident to the another non-resident did not result in taxable income in the hands of the transferor and hence, there was no obligation for the payer to withheld tax at source. The Supreme Court followed the “look at” approach, i.e. form rather than substance, and refused to lift the corporate veil to bring the capital gains arising to HTIL to tax in India. In order to discourage such kind of indirect transfers and bring them to tax (especially where such transfers derives its value from assets situated in India) section 9 of the Act was amended retrospectively to bring to tax in India the capital gains arising on transfer of any assets outside India, between two non-residents, if such transfer derives substantial value in respect of any asset situated in India.
Section 195 was also amended, to clarify that the nonresident payer is liable to deduct tax at source, if the income in the hands of payee is taxable in India.
Explanation 2 was inserted to section 195 (1) of the Act vide Finance Act, 2012 with retrospective effect from 1st April 1962, clarifying that the obligation to deduct tax at source u/s. 195 has always been there for any nonresident, whether such person has any place of business or business connection or presence in any other manner. Whether it results in an extra-territorial jurisdiction is a matter of debate. For the sake of understanding, the relevant provision is reproduced herein below:
Explanation 2.—For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction there under applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has—
(i) a residence or place of business or business connection in India; or
(ii) any other presence in any manner whatsoever in India.
4. Procedure for furnishing of information of deduction of tax at source u/s 195(6)
Section 195(6) of the Act provides that a person responsible for paying to a non-resident (hereafter referred to as ‘payer’) shall furnish such information as may be prescribed under Rule 37BB. The said Rule 37BB provides that Form No. 15CA and/or Form No. 15CB4 shall be furnished for the purpose of paying to a non-resident. Form No. 15CA is to be filled and submitted online by the deductor i.e. payer. Form 15CB is to be issued by the practicing Chartered Accountant (C.A) certifying (actually expressing his opinion) the taxability (chargeability) of the income in the hands of the payee and the amount of tax required to be deducted by the payer. In order to arrive at the amount of tax to be deducted the CA is required to take into account various applicable provisions of the Act (to compute the income of the non-resident payee) as well as provisions of the applicable Double Tax Avoidance Agreement (DTAA ) and other relevant supporting documents and agreement, if any.
5. Steps while making a Remittance
Form 15CA is required to be furnished by the taxpayers for the purpose of remittance to a non-resident. It may be noted that Form 15CA should be filed in every case whether the remittance amount is chargeable to Incometax or not. However, exemption from filing of Form 15CA is provided in case of certain types of remittances.
Let us first deal with cases where the income is chargeable to tax. 15CA has four parts, namely, A,B,C and D. Following flow chart will be useful in understanding which part is to be filled in and under what circumstances.
6. Procedure where a remittance is not chargeable to tax:
6.1 Such remittances are classified in the following two categories as follows:
i. Non-reportable Transaction
ii. Reportable transaction
Let us first deal with transactions which are not required to be reported, meaning there is no need to file any form with the tax authorities.
6.2 Non-reportable Transactions
In following two cases there is no requirement to furnish Form 15CA or Form 15CB.
(i) Individuals making remittances under the Liberalised Remittance Scheme of FEMA and
(ii) Certain specified remittances as listed herein below.
Specified List of payments for which Form 15CA or Form 15CB are not required to be filed:
The earlier Rule 37BB contained 28 items which did not require submission of Form 15CA or 15CB at the time of the remittance. However, the new Notification No. 93/ 2015 now expands the list to 33 items.–
6.3 Reportable Transactions
Any transaction other than the non-reportable category is considered as reportable transaction. In other words, even if the remittance is not chargeable to tax, information in respect of such remittance is required to be provided in Part D of Form 15CA.
7. What is the difference between earlier Rule 37BB and the new Rule 37BB which is effective from 1st April, 2016?
Amendments in the new Rule 37BB as compared with earlier Rule 37BB are as follows:
Form 15CA and Form 15CB will not be required if an individual is making a remittance, which does not require RBI’s approval under FEMA or under the Liberalised Remittance Scheme (LRS).
The list of items which do not require submission of Forms 15CA and Form 15CB has been expanded from 28 to 33. The newly introduced items are as under –
i. Advance Payments against imports
ii. Payment towards import settlement of invoice
iii. Imports by diplomatic missions
iv. Intermediary trade
v. Imports below Rs. 5 Lakh (For use by Exchange Control Department offices)
Only the payments which are chargeable to tax under the provisions of Act in excess of Rs. 5 Lakh would require Certificate from a Chartered Accountant in Form 15CB.
A new reporting obligation is introduced for the authorised dealers (ADs) (i.e. the Banks). ADs will have to file Form 15CC (quarterly) in respect of the foreign remittances made by them.
8. Some Practical Issues
8.1 Cases where Tax Residency Certificate (TRC ) is required
Under the provisions of section 90(2), it has been provided that provisions of the Act or the DTAA , whichever are more beneficial to the assessee, shall be applicable. This benefit is, however, subject to satisfaction of conditions provided u/s. 90(4) of the Act. In order to claim the benefit of a DTAA , it has been provided that the non-resident payee must furnish a TRC which confirms that the payee is a Tax Resident of the other State. This becomes important from the perspective of the Act as well as DTAA since Article 4 (dealing with “Residence”) of almost all the DTAA s signed by India provides that benefits of the DTAA can be claimed only by such persons who are residents of either of the contracting states. In this connection, the reader may also refer to the Rule 21AB prescribing declaration in Form 10F to be obtained from the Non-resident payee.
8.2 Is there any other alternative other than a TRC since obtaining a TRC may not be feasible sometimes?
Section 90(4) provides for mandatory submission of TRC, issued by the foreign Government or a specified territory, in order to claim benefit of the DTAA. Thus, there is no alternative to submission of TRC.
However, if any foreign Government does not have a format or provision to issue TRC, then the taxpayer at best can get the information prescribed in Form 10F certified by the revenue authorities of the concerned foreign country or territory in order to avail the DTAA benefit.
It may be possible that the format in which TRC is issued by the foreign tax authority does not contain all the details required under Form 10F. For example, US IRS issues TRC in the Form 6166 which does not contain all details required in Form 10F. Therefore, the remitter needs to keep both the documents on record and submit to the Income tax Authorities in India, if and when required.
8.3 What are the details required to be provided in Form 10F?
Form 10F requires the following details –
(i) Name, Father’s name and designation of the person signing the form
(ii) Status (individual, company, firm etc.) of the assessee;
(iii) Nationality (in case of an individual) or country or specified territory of incorporation or registration (in case of others);
(iv) 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 assessee claims to be a resident;
(v) 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
(vi) 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.
9. How to file Form No. 15 CA electronically
Form 15CA is required to be filed by the tax payer in every case of remittance except where remittance falls within the category of non-reportable transactions. (Refer paragraphs 5 and 6 supra).
In the subsequent paragraphs step by step procedure is given for filling up Form No. 15 CA and filing it electronically:
Note: Before proceeding to e-file Part D of Form No. 15CA, keep the hardcopy duly filled in ready with you to expedite the process.
Step 1. Go to the website of incometaxindiaefiling.gov. in.
Step 2. Login using:
a. User Id- PAN
b. Password- as is used for e-filing the income tax return
c. D ate of Birth/Incorporation- as is already registered with the income tax for e- filing of return of income etc.
Step 3. Next screen will appear:
– Click on ‘e-file’
– Select “prepare and submit online Form other than ITR”.
Step 4. Next screen will appear
– Select Form Name- “15CA”
– Click on “Click here to download the DSC Utility”
– O pen the “DSC Utility” and double click on the utility
– General Instruction Page will appear on the screen
– Click on “Register DSC” tab next to the Instruction tab
– Enter e-filing User- Id- which is PAN of the assessee
– Enter PAN of the DSC- Registered in e-filing which is the PAN of the person authorized to sign Form No. 15 CA
– Go to “Select type of digital signature certificate- Click on “USB token”
– Go to “Select USB token Certificate” and
select the name of the person authorized
to sign Form No. 15CA
– Click on “Generate Signature File”
– E nter the PIN of DSC and click ok.
– Save the “DSC Signature file”
– Come back to e-filing website- Attach “DSC
Signature File”. For this, click on “Browse” and attach the signature file saved and press “continue”.
– Select Relevant Part of Form No. 15CA from the drop down- PART D
– Click on continue and Form No. 15CA will be displayed on the screen.
Step 5. Fill up the details of the Remitter from the Hardcopy of PAR T D- Form No. 15CA.
– Following details are to be selected from the drop down
– State
– Country
– Status of the Remitter
– R esidential status of the remitter
Step 6. Fill up the details of the “Remittee”
– Following details are to be selected from the drop down
– State- Select “State outside India”
– Country- Select the Country of Residence of the remmittee
– Country to which remittance is to be made- Select the country of remittee
– Currency- Select the currency of remittance
– Country to which recipient of remittance is resident if available – Select the country of residence
Step 7. Fill up the details of “Remittance”
– Following details are to be selected from the drop down
– Name of the bank through which the remittance shall be made
Step 8. Fill up the “Nature of Remittance”
– Nature of Remittance as per the agreement / document is to be selected from the list of 65 categories of remittance mentioned in the Drop Down
Step 9. Fill up the “Relevant purpose code as per RBI”
– 1st Drop Down- Select the category of remittance from the list of 24(Twenty Four) categories mentioned
– 2nd Drop Down- Select the purpose code and description of remittance as mentioned in the hardcopy of Part D of Form No. 15CA
Step 10. Click on PAR T D- Verification tab next to Form 15CA on the top of the page.
– Fill up the details of the person authorized to sign “Form No. 15CA”
– Click on “Submit” button on the top of the page.
– Part D – Form No. 15 CA will be uploaded successfully.
Step 11. A fter filing Part D. Click on “My Account” tab nd Click on “View Form No. 15CA”
Step 12. Click on the Acknowledgement No link on the screen and then click on “ITR/FORM”.
Step 13. To open the PDF file enter the password. The password for the same is PAN in small letter with Date of birth/incorporation in continuation without using any special character.
Step 14. After downloading the PDF file, Save and print the same.
10. How to file Form No. 15 CB electronically
Step by step procedure for E-filing of Form Nos. 15 CA and 15 CB is as follows:
PRE-REQUISITES
In order to file Form 15CB, Tax payer must add CA. To add CA, Please follow the steps given below:
Step 1 – Login to e-filing portal, Navigate to: My Account? Add CA”.
Step 2 – E nter the Membership Number of the CA
Step 3 – Select 15 CB as Form Name and click submit.
Once the taxpayer adds the CA, the CA can file Form 15 CB in behalf of taxpayer.
In order to file Form 15CB, Chartered Accountant must follow the below steps.
Step 1 – U ser should be registered as “Chartered Accountant” in e-Filing. If not ready registered, user should click the link Register Yourself in the homepage.
Step 2 – Select “Chartered Accountants” under Tax Professional and click continue.
Step 3 – E nter the mandatory details and complete the registration process.
FILING PROCESS
Note:
Before proceeding to e-file Form No. 15CB keep the hardcopy duly filled in ready with you to expedite the process.
Kindly note that all the amounts to be entered in INR unless and until specifically required to be filled in Foreign Currency.
Step 1 – Go to the website of incometaxindiaefiling.gov.in.
Step 2 – on “Forms Other than ITR” on the Right Hand Side of the Website.
Step 3 – Download “Form No. 15CB”
Step 4 – on “ITD_EFILING_FORM15CB_PR1.jar”
Step 5 – General instruction page will appear on the screen
Step 6 – Click on “Form 15CB” tab on the Top left hand side
– F ill up Form 15CB from the hard copy of the Form 15CB prepared. Step 7 – Point No. 6 of Form 15CB
-1st Drop Down- Select “Nature of remittance” from 65 categories stated in drop down.
Step 8 – Point No. 7 of Form 15 CB
– 1st Drop Down- Select “Relevant Purpose Group Name” of remittance from 24 categories from the drop down.
– 2nd Drop Down- Select “Relevant Purpose Code and Description” of remittance.
– 3rd Drop Down- Select Yes or No for “In case the remittance is net of taxes, whether tax payable has been grossed up”
Step 9 – After filling up the details- Click on “Save Draft”
Step 10 – Click on “Validate”
Step 11 – Click on “Generate XML” and save the XML file.
Step 12– Go to “incometaxindiaefiling.gov.in” website and Login using:
a. User Id- PAN
b. Password- as is used for e-filing the income tax return
c. D ate of Birth/Incorporation- as is already registered with the income tax for e-filing of return of income etc.
Step 12 – Click on “e-file” – “Upload Form”
Step 13 – Fill up the following details
– PAN/TAN of the Assessee (Remitter)
– PAN of CA (for example: Name of CA – PAN of the CA)
– Select Form Name- 15CB
– Select filing type- Original
– A ttach the “XML” file saved
– A ttach “DSC of CA”
– Click on submit- Form No. 15CB will be submitted successfully
Step 14 – After filing Form 15CB Click on “My Account” tab and Click on “e-filed returns/forms”
– Click on PAN/TAN of assessee (Remitter)
– Click on relevant Acknowledgement Number link
– Click on ITR/FORM
– To open the PDF file, enter the password.
The password for the same is PAN in small letter with Date of birth/incorporation in continuation without using any special character.-
– After downloading the PDF file, Save and print the same.
– Click on “Receipt”
– Save and print the same.
11. Summation
Amendments to Rule 37BB though appearing complicated will reduce the compliance burden of the tax payer. It also provides the much needed certainty by specifying various transactions for which reporting is not required. Small value transactions not exceeding Rs. Five lakh per year are exempted from the cumbersome procedure of reporting by e-filing. However, a word of caution here is that the transactions not exceeding Rs. Five lakh per year are exempted only from reporting and not from the obligation of withholding tax wherever applicable. Therefore, the tax payer may have to deduct tax at source in an appropriate case even if the transaction value is less than Rs. Five lakh. Similarly, robust documentation would be required to justify the non-reporting or non-deduction transactions as hitherto. In order to determine whether the tax is deductible or not, the remitter would be required to ascertain the taxability of payment in the hands of the non-resident and that will require knowledge of the legal provisions governing Taxation of Cross Border Transactions. The remitter would be faced with a number of issues such as (i) Classification/ Characteriation of the payment (e.g. Business Income vs. Capital Gains or FTS or Royalty); (ii) Existence or otherwise of a PE (iii) Quantum of Income to be attributed to the PE (iv) Eligibility to access a Tax Treaty, (v) Application of the provisions of a DTAA vs. the Income-tax Act, (iv) issues relating to Interpretation and application of a DTAA , etc. In many cases although prima facie the remitter is not required to deduct tax at source and the new procedure also does not require him to obtain a CA Certificate in Form 15 CB, it would be advisable that he obtains CA Certificate in the Form 15 CB for NIL TDS because the CA would be able to substantiate the non-deduction of tax at source with valid documentation, judicial support and detailed and sound reasoning. In such a case, the remitter may fill up Part C of the Form 15 CA along with Form 15 CB.(However, in view of the language of Part D of Form 15CA, there is ambiguity as to whether Part C has to be filled up or Part D. In our view, once Form 15CB is obtained and uploaded electronically and acknowledgment number of such Form 15CB is filled in by the remitter in Form 15CA, Part C of Form 15CA will be automatically filled in). The issue needs to be clarified by the CBDT about the procedure to be followed by the remitter in case he desires, out of abundant caution, to obtain a CA Certificate in Form 15CB to be absolutely certain about taxability or otherwise of a particular remittance under the provisions of the Income-tax Act and/or the applicable Tax Treaty. Presently, the consequences of non-deduction of tax at source are very serious as it would not only lead to disallowance of the payment u/s. 40(a)(i) but also penalty u/s. 271C and levy of Interest u/s 201 of the Act. Many a time, the Assessing Officers are prone to summarily disallow all remittances from which tax has not been deducted at source and hence it may land the tax payer into a long drawn litigation. However, if the remitter has obtained a CA certificate for non-deduction of tax, it would help him in the Assessment and Penalty Proceedings, if any.
