Circular No. 695-Income tax dated 29-11-1994

Streamlining the procedure for obtaining authorisation for payment of sums to non-residents after deduction of tax at source, under section 195(1)

1. The Board has had occasion to examine the procedure being followed for authorisation of remittances to non-residents.

2. Under section 195(1) of the Income-tax Act, any person responsible for paying to a non-resident any sum chargeable to tax under the Act excepting interest on securities and income under the head “Salaries”, is required to deduct tax at source at the rates in force. Such deduction should be made at the time of the credit of the income to the account of the payee or at the time of payment thereof, whichever is earlier. The proviso to section 195(1), however, lays down that in case of interest pay­able by the Government or a public sector bank or a public finan­cial institution within the meaning of section 10(23D) of the Act, deduction of tax at source will be made at the time of payment.

3. The Department of Economic Affairs, Ministry of Finance issued a Press Note dated 17-5-1988 laying down the procedure for remit­tances to foreign companies by way of royalty and fees for tech­nical services under approved agreements. This procedure is applicable only where income-tax @ 30% from such payments is deducted and paid into “designated” banks. As per this procedure the remitter has to furnish to the “designated” bank details of payments in the prescribed form certified by a chartered account­ant along with the income-tax challan of payment. On payment of tax by the remitter, the designated bank would forward a certifi­cate regarding such payment to the Reserve Bank of India. On receipt of the certificate of payment of tax from the concerned bank, the Reserve Bank of India would permit the remittance of the balance without insisting on a ‘No Objection Certificate’ from the income-tax authorities.

4. It is observed that the Reserve Bank of India insists on the production of a ‘No Objection Certificate’ from the income-tax authorities whenever there is a claim that the rate or rates for deduction of tax at source is lower than 30% in case of royalty or fees for technical services, or if the proposed remittance is in respect of other types of income.

5. In order to simplify and to bring uniformity in the form of application to be made by the remitter and the authorisation to be issued, the Board has considered the issue of non-statutory forms for such purposes. A copy of each of these forms is en­closed. These new forms may be used while applying for authorisa­tion and for granting authorisation under section 195. The au­thority to whom the application for authorisation is made will verify the claims of the payers in the light of the Income-tax Act, the Double Taxation Avoidance Agreements and the specific facts of the transactions, before authorising the remittance.

Circular: No. 695, dated 29-11-1994.

APPLICATION SEEKING AUTHORISATION FOR PAYMENTS TO NON-RESIDENT [SEE SECTION 195(1) OF THE INCOME-TAX ACT, 1961]

Notes:

     1.   This application relates to payments to a non-resident not being a company, or to a foreign company.

     2.   The payments covered by this application may be of interest (not being interest on securities) or any other sum chargeable to income-tax (excluding income chargeable under the head ‘Salaries’).

     3.   An authorisation from the income-tax authority will not be required for the payment of royalty and fees for technical services to foreign companies under approved contracts, where income-tax at 30% has been deducted and paid into designated banks as per instructions issued by the Economic Affairs Depart­ment. In all other cases, an authorisation is to be obtained for the proposed payment.

     8.   I, (name)…………………………………………………………………………………………..…………………………………………………………………………….

        (designation)……………………………………………………………………………………………………………………………………………………………………

being the person responsible for making this proposed payment request that I may be authorised to pay the sum mentioned at col. 3(b) to the non-resident mentioned at col. 4 after deduction of tax at the rate mentioned at col. 7 above.

I declare that what is stated in this application is correct and complete.

UNDER SECTION 195(1) OF THE INCOME-TAX ACT, 1961

Income-tax Office,

………………………………..

Dated……………19……….

To

………………………………

………………………………

………………………………

Sir,

Please refer to your application dated …………………………….. requesting for authorisation to remit the sum of…………………………………………………being in the nature of……………………………………………to……..……………….…………………………………….

(Name and address of the non-resident recipient)

2. You are hereby authorised to make payment of the aforesaid sum to……………………………………………………………………………….

(Name and address of the recipient)

being in the nature of*…………………………….., after deducting income-tax at source at the rate of ………………. thereon under section 195(1) of the Income-tax Act, 1961.

3. Proof of payment of income-tax to the credit of the Central Government has to be produced before the concerned bank authori­ties at the time of the remittance of the said sum to the non-resident. A copy of the proof of payment of income-tax must be submitted to the undersigned (within a week of the payment) along with Form No. 27 read with rule 37A of the Income-tax Rules, 1962.

4. This authorisation shall remain in force for the financial year 19…………., unless it is cancelled or modified before the expiry of the said financial year. The fact of the cancella­tion or modification will be intimated to you.

Yours faithfully,

(Assessing Officer)

……………………………

(Seal)

     1.   *Please specify nature of payment, e.g., dividends, interest, royalty and fees for technical services.