In an effort to bolster the International Financial Services Centre (IFSC) and attract global financial entities, various incentives and benefits have been provided over the years. This year, the Central Board of Direct Taxes (CBDT) has introduced another relief measure aimed at enhancing the ease of operation for non-residents in IFSC-banking units vide Notification G.S.R. 728(E) dated 10th October, 2023. This relief specifically addresses the mandatory quoting of PAN (Permanent Account Number) in certain transactions. In this article, we’ll delve into the key amendments introduced by the CBDT and explore their implications for non-residents operating in IFSC-banking units.
Exemption for Foreign Companies: One of the significant amendments pertains to foreign companies operating in IFSC. If a foreign company does not have taxable income in India and has not obtained a PAN, they are not required to quote PAN in specific transactions outlined under Rule 114B. This exemption acknowledges the unique position of foreign companies operating in IFSC, where their income may not be subject to taxation in India. However, in lieu of PAN, these foreign companies are required to make a declaration using Form 60. This exemption simplifies the regulatory requirements for foreign companies in IFSC and facilitates ease of operation.
Exemption for Non-Residents: Non-residents who do not have taxable income in India can now enjoy an exemption from quoting PAN in transactions specified under Rule 114BA. This exemption is particularly valuable for non-residents operating in IFSC-banking units, as it recognizes that their financial activities within the IFSC may not attract Indian taxation. This amendment streamlines the compliance process for non-residents, reducing administrative burdens and ensuring a conducive environment for conducting business.
Similar Exemption for Rule 114BB: The CBDT has extended a similar exemption as provided in Rule 114BA to transactions specified under Rule 114BB. This broadens the scope of transactions where non-residents can benefit from the PAN quoting exemption. It reflects the CBDT’s commitment to creating a business-friendly ecosystem within IFSC by reducing unnecessary regulatory complexities.
Amendment of Form No. 60: Form No. 60, a declaration form required to be filed by individuals entering into transactions specified under Rule 114B but do not possess a PAN, has been amended to align with these changes. This amended form ensures that non-residents have a simplified and efficient means of complying with regulatory requirements, further promoting ease of operation.
Form No. 10F for Non-Residents: While media reports suggest that the CBDT has enabled a feature for non-residents to file Form No. 10F without obtaining a PAN, it’s important to note that no official update has been provided by the department at the time of writing this article. Nevertheless, this potential development could further enhance the ease of compliance for non-residents.
Permanent Establishment (PE) Exposure Consideration: It’s crucial to note that these amendments are particularly beneficial for non-residents whose income remains non-taxable in India due to the absence of Permanent Establishment (PE) exposure as defined in tax treaties. However, to assert that the income will not become chargeable to tax in India, it’s imperative to conduct a detailed analysis of the risk of PE exposure. Understanding the intricacies of tax treaties and the presence or absence of PE is essential for non-residents to ensure their income remains non-taxable.
Conclusion: The CBDT’s recent amendments regarding the mandatory quoting of PAN in certain transactions offer significant relief to non-residents operating in IFSC-banking units. These changes enhance the ease of operation and reduce regulatory complexities, making IFSC an even more attractive destination for global financial entities. As these amendments come into effect, it is important for non-residents to consider the tax treaties and PE exposure carefully to ensure that their income remains non-taxable in India. These developments underscore the Indian government’s commitment to creating a thriving global financial hub within IFSC while simplifying the compliance process for non-residents.
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