a) Section 206AA- Exemption from requirement of furnishing PAN under section 206AA to certain non-residents– Request to treat the amendment as clarificatory
The Honorable Finance Minister has, in para 176 of his Budget Speech [Union Budget 2016-17] stated that non-residents without PAN are currently subjected to a higher rate of TDS. Hence, the Finance Act, 2016 amended the relevant provision to provide that on furnishing of alternative documents, the higher rate will not apply.
The said beneficial provision appears to be clarificatory in nature and hence, may be given effect to since the inception of section 206AA.
It is suggested that this amendment be treated as clarificatory.
b) Relieve return filing obligation if royalty/ FTS/ capital gains has suffered TDS and also clarify that s.206AA(7)(ii) read with Rule 37BC has retrospective effect
Pursuant to recommendations in the first report of the Income Tax Simplification Committee, Finance Act 2016 has liberalized the provisions of s.206AA by inserting s.206AA(7)(ii) which provides that s.206AA shall not apply to payments to non-residents subject to conditions as may be prescribed.
Recently, CBDT has notified Rule 37BC which provides that if the nonresident payee furnishes certain information and documents like TRC or Unique Identification number in his home country, s.206AA shall not apply to specified payments viz. interest, royalty, FTS and capital gains.
This is a welcome relief to the taxpayers and considerably improves ease of doing business with non-residents by obviating the need to obtain PAN for nonresidents.
However, the requirement of filing returns by such non-residents still continues (except for interest payments covered by s.115A(1)(a)) and without PAN, it is also possible to file return.
Thus the position which presently exists is that while PAN is not necessary at withholding stage, it is still necessary for filing return. Non filing of return attracts penalty u/s. 271F as also risk of prosecution u/s. 276CC
The TDS rates applicable for non- residents is generally the final tax payable by such non- residents. The information of payments to nonresidents gets transmitted to Tax Department on real time basis through compliance u/s. 195(6) read with Rule 37BB (Form 15CA/B) and quarterly withholding tax returns. Hence, requirement of filing return has no real benefit to the Tax Department. On the contrary, it increases compliance burden for the non-residents and makes them liable for penalty or prosecution.
In limine with recent exemption provided to non-residents from obtaining PAN for avoiding higher TDS u/s. 206AA if they furnish TRC, they should also be relieved from return filing obligation where payer has already withheld taxes and reported in Form 15CA/CB.
Additionally the non- residents shall also be relieved from filing Form 3CEB and maintaining transfer pricing document in case of transactions with associated enterprises on which appropriate TDS has been deducted.
c) PAN for foreign parties i.e. non- residents
India has entered into number of DTAA under the Viena Convention and the domestic law under section 206AA should not override such agreements with other countries. Therefore, it should be provided that wherever the rate of tax under the DTAA is lower than 20% under section 206AA, same should be applicable irrespective of the non resident having PAN in India.
It is suggested that section 206AA should not override the DTAA entered in to by India.