Section 206(7)(ii) &
Rule 37BB & 37BC: No Mandatory requirement of PAN for Non Residents.
Finance Act 2016 has liberalized the provisions of
Section 206AA by inserting provisions of Section 206(7)(ii) which
provides that provisions of Section 206AA shall not apply to Non residents subject to such conditions as may be
prescribed. Such amendment was made with the intension of simplifying the taxation for NRIs, Foreign Companies and Foreign Nationals.
This is a very welcome provision and Rule
37BC being effective retrospectively has relieved the assesses making payments
to Non residents for deduction of Tax at Source at a lower rate as specified in
DTAA and not as per overriding section
206AA where rate of withholding tax is @20% in case of no PAN.
Section 206AA shall
apply notwithstanding anything contained in other provisions of the Act any
person entitled to receive any sum or income or amount, on which tax is deductible
under Chapter XVIIB (hereafter referred to as deductee) shall furnish his
Permanent Account Number to the person responsible for deducting such tax
(hereafter referred to as deductor), failing which tax shall be deducted at the
higher of the following rates, namely:
(i) at the rate specified in the relevant provision
of this Act; or
(ii) at the rate or rates in force; or
(iii) at the rate of twenty per cent.
Non Applicability of Certificates u/s 197 for non
deduction or deduction of TDS at a lower rate:
Form
15G/15H for lower deduction/ NIL As per Section 197, no Certificate [15G/15H] shall
be granted unless the application form for such Certificate u/s 197 contains the PAN of the applicant.
Therefore,
in the absence of PAN no Form 15G or 15H
u/s 194 can be issued to a deductee
Invalid
PAN to be treated as if no PAN has been provided by the Deductee &
provisions of Section 206AA shall be applicable.
Provisions Before 24th June 2016:
Before
24 June 2016, the provisions of Section 206AA apply uniformly in respect of all
the persons whether resident or non resident who were to receive income on
which Tax is deductible at source.
In
case of failure to furnish PAN by such deductees, a higher rate of tax upto 20% was deducted as
described above.
Confusion between Tax rate as per DTAA & Section
206AA
Section 206AA covered both
Residents as well as non residents for tax deduction at source. However, No
clarification was provided as to whether Rate of Tax as per DTAA or Tax rate as
per Section 206AA were to be applicable for payments to Non Residents.
Further,
Mandatory requirement of obtaining PAN in India drew negative response from
International Business Community since Non residents were also required to
Obtain Pan in India.
Section
206AA as amended by CBDT Notification No. 53/2016 read with rule 37BC inserted
w.e.f. 24 June 2016.
For the purpose of eliminating above mentioned
anamolies , providing necessary clarifications & Pursuant to recommendation
of first report of Income Tax simplification Committee, Finance Act 2016 has
liberalized the provisions of Section 206AA by inserting provisions of Section
206(7)(ii) which provides that provisions of Section 206AA shall not apply
to Non residents subject to such
conditions as may be prescribed.
The
provision of Section 206AA shall not apply to a Non resident, not being a
company, or to foreign company in respect of :
Section 206(7)(ii) provides that
provisions of Section 206AA shall not apply to payments to Non Residents which
is not a Company or Foreign Company in respect of:
(i) Payment of interest on
Long Term Bonds as referred in Section 194LC: There
is no requirement to provide PAN No. where income is taxable under section
194LC.
(ii) Any other payments subject to such conditions
as may be prescribed: For this
purpose Rule 37BC has been inserted.
Rule
37BC inserted w.e.f. 24th June 2016.
As
per this rule, Provisions of Section 206AA shall not be apply to Non Residents
except "Company" or "Foreign Company". Payments
on which Section 206AA shall not be applicable has also been defined as
follows:
a)
Payment
in the nature of Interest,
b)
Payment in the nature of Royalty
c)
Payment
in the nature of Technical services.
d)
Payment
for transfer of Capital asset.
Apart
from above payments, Section 206AA shall continue to apply to other type of
payments such as Salary, Pension, Business profits, director remuneration, fees
of sports persons etc.
Documentary
Requirements under Rule 37BC.
However,
following information needs to be submitted by non Resident deductee for the
purpose of claiming the benefit bestowed upon Non residents by Rule 31BC:
a)
Tax
Residency Certificate of Non Resident in any country outside India.
b)
Tax
Identification No. of the country in which such person is the resident or any
other Unique identification no. by which such person is identified by the
Government of that country.
c)
Name
,Email , Contact No. & Address of the Nonresident in the territory outside
India.
Section 206AA shall continue to apply in case of
failure to furnish the abovementioned information by the Non resident deductee.
Clarification: Benefit of Rule 37BC is available only in case
where Non Resident does not have a PAN. However, If the non resident having a
valid PAN but does not furnish the same, then benefit of Rule 37BC shall not be
available.
Retrospective
Applicability of Rule 37BC:
Rectification of TDS Demands relating to lower deduction
TDS due to non availability of PAN:
Rule 37BC has been made applicable with
retrospective effect. Accordingly, Deductors whose TDS demands have been
outstanding in respect of Deduction of TDS at a lower rate prior to 24 June
2016, may now get their demands rectified by claiming the benefit of Rule 37BC subject
to fulfillment of conditions as mentioned above.
PAN still
required for filing return:
However, the current position is that while PAN is
not required at tax withholding stage (i.e.
Section 206AA shall not apply even if Non Resident does not have PAN) but
Return Filing requirement for Non
Residents still exists & Income Tax Return cannot be filed without PAN.
Thus, while PAN is not required at tax
withholding stage, PAN is still required for filing Income Tax Return by Non
Residents & Failure to file return attracts penalty u/s 271F &
prosecution u/s 266CC.
ITR Filing by
Non Residents Redundant: Normally TDS deducted is the final tax payable by
Non Residents & information regarding payments to no residents is
transmitted on a real time basis to Income Tax Deptt.on real time basis through
compliance u/s 195(6) & Rule 33BB 915CA/CB) & therefore Return filing
by Non residents does not serve any real purpose for the Revenue authorities.
The real benefit of Rule 37BC shall only be available to Non Residents only if
Government relieves the Non residents from Filing of Income Tax Return in cases
where payer has deducted TDS & has also reported the
same in Form 3CA & 3CB.
Contributed by : Tanveer Alam CA Finalist at Sandeep Ahuja & co
