CA Nikita Thadani

CA Nikita ThadaniSection 195 of the Income Tax Act,1961:

Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB , 194LC or  194LD) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries” ) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash , cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.

Scope and Extent:

For the removal of doubts, it is hereby clarified that the obligation to make deduction thereunder applies and extends to all persons, resident or non-resident, whether or not the non-resident person has—

(i) a residence or place of business or business connection in India; or

(ii) any other presence in any manner whatsoever in India.

Provision for lower deduction of tax – Application by the deductor to the AO:

Where the person responsible for paying any such sum chargeable under this Act to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, (by general or special order), the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted only on that proportion of the sum which is so chargeable.

This can be done by making an application to the AO on a letter head/plain paper u/s 195(2) (under Rule 10), if he opines that only a portion of the payment is going to be taxed.

Provision for nil deduction of tax – Application by the recipient to the AO:

Any person entitled to receive any interest or other sum on which income-tax has to be deducted may make an application in the prescribed form to the  Assessing Officer for the grant of a certificate authorizing him to receive such interest or other sum without deduction of tax under that section.

This can be done by making an application u/s 195(3) in Form 15D. Certificate is valid for the financial year specified therein unless cancelled by AO any time before the expiry of the financial year.         

Rate of deduction of tax:

Tax has to be deducted at rates prescribed under relevant Finance Act or at the rates prescribed/specified in Double taxation avoidance agreement (DTAA) (hereinafter referred to as “treaty”), whichever are beneficial to the assessee.

Chapter XVII-B of Income Tax Act,1961 provides for the deduction of taxes at the source of any payments made by an assesse.

Incase payee not having valid PAN, then TDS rate  as per rate prescribed chapter XVIIB or 20% whichever is higher will apply.

Treaty is an option to the assessee.*

(*It should be noted that as per Section 90, if any DTAA has been entered into by the Central Government with the with the Government of any country outside India or specified territory outside India, as the case may be, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.)

However, such an assesse to whom such agreement applies shall not be entitled to claim any relief under such agreement unless a certificate (tax residency certificate, referred to as “TRC”) of his being a resident in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory.

Procedures:

Section 195(6): It should be noted that the person making the payment shall furnish the information relating to payment of any sum in such form and manner as may be prescribed by the Board.

Rule 37BB of the Income Tax Rules, 1962 provides the information required to be furnished by a person while making payment to a non-resident. This information is furnished in Form No. 15CA and a Certificate from a Chartered Accountant (CA) is required in Form 15CB as prescribed hereunder:

As per Rule 37BB,

 Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or salary* or any other sum chargeable to tax under the provisions of the Act, shall furnish the following, namely:—

(i) the information in Part A of Form No.15CA, if the amount of payment does not exceed fifty thousand rupees and the aggregate of such payments made during the financial year does not exceed two lakh fifty thousand rupees;
(ii) the information in Part B of Form No.15CA for payments other than the payments referred in clause (i) after obtaining—

 

  (a) a certificate in Form No. 15CB from an accountant as defined in the Explanation below sub-section (2) of section 288; or
(b) a certificate from the Assessing Officer under section 197; or
(c) an order from the Assessing Officer under sub-section (2) or sub-section (3) of section 195.

From the above, please note that this certificate prescribed under Section 195(6) of the Income tax Act, 1961 is an alternate channel of obtaining Tax clearance apart from Certificate from Assessing Officer.

* Note: TDS on salary to non-residents (including Indian NR) is governed by sec. 192 and not 195.

Form 15CA and 15CB:

  • The information in Form No. 15CA shall be furnished by the person electronically to the website designated by the Income-tax Department and thereafter signed printout of the said form shall be submitted to the authorised dealer, prior to remitting the payment.
  • An income-tax authority may require the authorised dealer* to furnish the signed printout referred to in sub-rule (2) for the purposes of any proceedings under the Act.
  • Form 15CB is the Tax Determination Certificate where the Issuer CA examines the remittance having regard to chargeability provisions under Section 5 and 9 of Income tax Act along with provisions of Double tax Avoidance Agreements with the Recipient’s Residence Country.
  • CBDT had amended Rule 37BB in August 2013, to broaden the requirement of collecting information and reporting requirements for remittances outside India. However, it has also provided with a list of payments which are not required to be reported under the revised Rule 37BB of the Rules
  • Authorised Dealers/ Banks are now becoming more vigilant in ensuring that such Forms are received by them before remittance is effected since now as per revised Rule 37BB a duty is casted on them to furnish Form 15CA received from remitter, to an income-tax authority for the purposes of any proceedings under the Income-tax Act.
  • Certificate in Form 15CB is not required when remittance does not exceed Rs 50,000 (single transaction) and Rs 2,50,000 (in total in a financial year). Only Form 15CA is has to be submitted in this case.

*Explanation 1.—For the purposes of this rule, “authorised dealer” means a person authorised as an authorised dealer under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999).

(Author can be reached at  thadani.nikita@gmail.com and on mobile  9990952003)

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0 responses to “Withholding Taxes – Applicable Section, Rules, Rates and Procedures”

  1. KR Raman says:

    I am a Canadian citizen of Indian origin living in India since 1993. I also have an OCI (Overseas Citizen of India) card. I have a Canadian life insurance policy for which I have been paying premiums every year with a bank draft purchased at my local bank.

    This year, when I want to do the same, my bank informs me that I need to obtain Form 15CA, because of new Govt Notifications from June 1, 2015.

    Is this the correct situation ?

    Thank you.

  2. Nikita Thadani says:

    There is no option of providing any undertaking to the banks. Banks have become very particular and alert in collecting Form 15ca/cb before releasing the payment.

  3. Nikita Thadani says:

    form 15ca/cb should be filed in case of remittance towards import of goods after checking business connection as per Section 9 and checking the DTAA with the country of the Importer. As 15ca/cb is filed in all cases where the amount is chargeable to tax.

  4. vishal wayal says:

    Is 15ca and 15cb required to be filed for remittance towards import of goods.. please also let me know whether we have some option of providing any undertaking to banks..

  5. Kulbhushan says:

    Is form 15CA/ CB is to filed on Payment made to foreign supplier regarding import of goods .

    thanks

  6. Sekar says:

    well refreshed article…….Thanks

  7. Namit Chhabra says:

    Very precise, thanks !

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