1. Recommendation To Exempt Non-Residents Having Tax Identification Number (TIN) From The Applicability Of TDS At A Higher Rate Under Section 206AA
Under the current provisions of Section 206AA, tax is required to be deducted by the deductor at a higher rate as prescribed under the said section, where the deductee does not furnish his Permanent Account Number (PAN). This section was introduced with the objective that the furnishing of PAN was important with a view to trail the taxability of the payments in the hands of a non-resident. As regards non-residents, the Committee noted that in view of the specific provisions of Section 115A and the provisions under the respective Double Tax Avoidance Agreements (DTAAs) prescribing specific rates for tax deduction at source u/s. 195, there was no justification for providing deduction of tax at a higher rate than as prescribed under Section 115A or under the respective DTAA. In fact, this provision has proved to be an impediment in terms of ease of business, as many non-residents prefer not to do business with Indian residents, if obtaining of PAN is insisted from them.
The Committee was of the view that it should suffice if the concerned non-resident furnished to the deductor, in lieu of such Permanent Account Number, his tax identification number in the country or the specified territory of residence and in case there is no such number, then, a unique number on the basis of which the person is identified by the Government of the country or the specified territory of which such person claims to be a resident.
2. Accordingly, the Committee recommends to amend the provisions of Section 206AA, by substituting sub-section (7) to the said section as under:
Sub-section (7) to Section 206AA to be substituted with effect from 1.6.2016 as follows:
(7) The provisions of this section shall not apply in respect of the following:
(i) a non-resident, who does not have a Permanent Account Number, furnishes to the deductor, his tax identification number in the country or the specified territory of residence and in case there is no such number, then, a unique number on the basis of which the person is identified by the Government of the country or the specified territory of which such person claims to be a resident.
(ii) payment of interest, on long-term bonds, as referred to in section 194LC, to a non-resident, not being a company, or to a foreign company.