Introduction: The Ministry of Finance has issued a significant notification, No. 64/2023-Income Tax, on August 17, 2023, amending the Income-tax Rules, 1962. The notification introduces a new rule, impacting the deduction of tax at source (TDS) on income payable in foreign currency. The rule specifies the rate of exchange for calculating the value of such income in rupees.
Analysis: The new rule, outlined in the notification, pertains to the deduction of TDS on income paid in foreign currency. It outlines the specific scenarios where this rule applies, including payments to an assessee outside India and to a Unit located in an International Financial Services Centre. Additionally, the rule covers payments by a Unit located in an International Financial Services Centre to an assessee in India.
The rule emphasizes that the rate of exchange used for TDS calculation will be the telegraphic transfer buying rate of the foreign currency. This rate is determined as of the date when the tax is required to be deducted at source. This update ensures that the TDS calculation is based on the most current exchange rate, enhancing accuracy and fairness in taxation.
The notification provides explanations for key terms used in the rule, such as “International Financial Services Centre,” “telegraphic transfer buying rate,” and “Unit.” These clarifications aid in interpreting and applying the rule correctly.
Conclusion: The Ministry of Finance’s recent notification, No. 64/2023-Income Tax, introduces a vital amendment to the Income-tax Rules, 1962. The new rule specifies the rate of exchange for TDS calculation on income payable in foreign currency, ensuring accurate taxation and compliance. As businesses and individuals engage in cross-border transactions, this rule will play a crucial role in maintaining transparency and fairness in the taxation process. It is essential for taxpayers to be aware of this development and ensure compliance with the updated regulations to avoid any potential penalties or legal consequences.
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
New Delhi
Notification No. 64/2023-Income Tax | 17th August, 2023
G.S.R. 607(E).—In exercise of the powers conferred by section 295 of the Income-tax Act 1961 (hereinafter referred to as ‘Act’), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:––
1. Short title and commencement.–– (1) These rules may be called the Income-tax (Seventeenth Amendment) Rules, 2023.
(2) They shall come into force from the date of their publication in the Official Gazette.
2. In the Income-tax Rules, 1962 (hereinafter referred to as the principal rules), for rule 26, the following rule shall be substituted, namely:––
“26. Rate of exchange for the purpose of deduction of tax at source on income payable in foreign currency.––
For the purpose of deduction of tax at source on any income payable in foreign currency, the rate of exchange for the calculation of the value in rupees of such income payable––
(i) to an assessee outside India;
(ii) to a Unit located in an International Financial Services Centre;
(iii) by a Unit located in an International Financial Services Centre to an assessee in India, shall be the telegraphic transfer buying rate of such currency as on the date on which the tax is required to be deducted at source under the provisions of Chapter XVIIB by the person responsible for paying such income.
Explanation.–– For the purposes of this rule, ––
(i) “International Financial Services Centre” shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);
(ii) “telegraphic transfer buying rate”, in relation to a foreign currency, means the rate or rates of exchange adopted by the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), for buying such currency, having regard to the guidelines specified from time to time by the Reserve Bank of India for buying such currency, where such currency is made available to that bank through a telegraphic transfer;
(iii) “Unit” shall have the meaning assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).”.
[Notification No. 64/2023/F.No. 370142/27/2023-TPL]
JIVITESH ANAND, Under Secy. (Tax Policy and Legislation Division)
Note : The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section 3, Sub-section (ii) vide notification number S.O. 969 (E), dated the 26th March, 1962 and was last amended vide notification number G.S.R. 604 (E) dated 16.8.2023.
