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Payment to NRI without PAN - Sec 206AA

Posted @ June 4, 2019, 12:36 am under (SECTION 195)

TDS without PAN for NRI payment – at Normal Rate

Section 206AA of the Income Tax Act requires a non-resident to furnish PAN to avail lower withholding rate. Furthermore, the lower withholding rate differs from country-to-country due to the treaty provisions. As per the Income Tax Act, the lower withholding tax rate is 10.506% (inclusive of cess) and 20% in absence of PAN.

The Central Board of Direct Taxes (CBDT) has notified that provisions of section 206AA will not apply for:

  • Interest Payment
  • Payments of royalty
  • fees for technical services
  • transfer of capital assets.

Provided a non-resident, who do not have PAN, can now avail lower tax rates if he/she furnishes prescribed documents and details to the payer as per (Rule 37BC(2)).

Below documents can be submitted to avoid higher TDS deduction as per Rule 37BC:

  1. Name, E-mail id, Contact number
  2. Address of NRI’s country of residence
  3. Tax Residency Certificate (TRC), if the law of country of residence provides for such certificate
  4. Tax Identification Number (TIN) in the country of residence. If TIN is not available, a unique identification number to be furnished that is identified in the country of residence.

For “non-specified incomes” (business income, etc.), normal rate is higher than S. 206AA rate of 20% S. 206AA anyways not relevant in such cases. PAN requirement continues for: - payments other than in the nature of interest, royalty, FTS & Capital Gains after 31.5.2016

 

History of Tax residency certificate - 

Finance Act,2012 has introduced sub-section (4) to Section 90 w.e.f. 1- 4-2013 to provide that a non-resident will not be entitled to claim benefits under the Treaty unless he obtains a tax residency certificate from the Government of his residence country/territory certifying that he is a tax resident of that country..

Furnishing TRC mandatory requirement

  • Notification 57/2013 dated 1 August 2013 issued by CDBT, which mandates submission of following information in Form 10F:
  • Status (individual, company, etc) of the assessee
  • Nationality or country or specified territory of incorporation or registration • Assessee’s tax identification number in the country or 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 the assessee claims to be a resident;
  • Period for which the residential status, as mentioned in the certificate referred to in sub-section (4) of section 90 or sub-section (4) of section 90A, is applicable; and
  • Address of the assessee in the country or specified territory outside India, during the period for which the certificate, as mentioned in (iv) above, is applicable.
  • Declaration not required, if TRC contains above particulars

 

 



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