International Tax – Foreign Remittance Certificate 15CB on payment for Import Purchases
Import Purchases constitute a major part of Indian Economy and payments to overseas supplier are a regular phenomenon in International Banking and remittances are being easily made in the Globalised Banking System. Normally Banks did not demand any CA certificate for making remittances for Import Purchases of goods, however with the recent change in Income tax Rules vide Notification No. 67 of 2013, dated 2 September 2013, with regard to Remittances Banks started insisting on CA Certificate.
Foreign Exchange Management Act prescribes for a No Objection Certificate from Income tax Authorities before making any foreign remittance. However considering the voluminous transactions and limited resources with the Income tax Department an alternate facility is provided wherein a Chartered Accountant’s Certificate (i.e. Form 15CB) along with Assessee’s undertaking (Form 15CA) submitted to Authorised dealer shall substitute NOC from Department.
CA certificate in Form 15CB is determination of tax, if any on subject income. Payments made against Import Purchases constitutes Business Income of the Overseas Supplier and is taxable in India only if it is attributable to a Business connection/Permanent Establishment in India as per Section 9(1)(i) and respective Double Tax Avoidance Agreement. It is settled law that in absence of any income chargeable to tax in India there cannot be any application of Section 195 (See GE India’s case in 327 ITR 456 SC)
To examine the taxability of income accruing on such overseas payments in view of above principles, requirement of such CA certificate has always been there.
It has been seen that since payment against Import Purchase of goods are not taxable in India, so neither Banks nor Authorised Dealers insisted for such certificate and confusion prevailed on requirement of CA certificate for Import payments. To clarify this position RBI had issued Circular No. 3 on 19.07.2007 providing that CA certificate in respect of TDS is required even in respect of remittances which are in nature of trade transactions such as import payments. Even after this Circular there were very few Banks insisting on such certificate.
Recently CBDT has revised the Form 15CB and Form 15CA with effect from October 1, 2013 and also exempted certain class of payments from requirement of obtaining such Certificate. Notably Trade payments including Import Purchases do not find place in this list which has stirred the Banks to demand for CA certificate in New Form 15CB.
With time, awareness on this issue will increase and there will be overwhelming demand for CA Certificate on Import purchases which will significantly increase opportunity for CA’s practicing and having knowledge of International tax.