Taxman relaxes rules for TDS claims by non-resident companies

Non-resident companies can now claim benefits of tax treaty by just providing personal details including, name, address and tax residency certificate, even without providing PAN.

The Central Board of Direct Taxes (CBDT) has come out with Rule 37BC, which gives relaxation to non-residents from furnishing PAN number in India while claiming TDS benefits.  Non-residents include foreign partnership, foreign body corporates, besides foreign companies.

It said in the absence of PAN, a non-resident can now provide the prescribed information and will not be subject to higher rate of withholding tax on payments made by Indian companies for interest, royalty, fees for technical services.

Non-residents can now claim the beneficial provisions of the tax treaty by providing personal details - name, email-id, address etc; Tax Residency Certificate (TRC) and Tax Identification Number (TIN) or any other Unique Identification number obtained in the country of residence.

“Non-residents can now take a sigh of relief, since the beneficial provision of the amended Section 206AA has become operational and treaty benefits shall not be denied by the tax authorities in the absence of PAN. Now a non-resident can claim the beneficial provisions of the tax treaty by providing his personal details,” said Rakesh Nangia, Managing partner, Nangia & Co.

Section 206AA of I-T Act provides that in absence of PAN, the payer shall be liable to withhold taxes at the rate of 20 per cent or the rate of tax as per the Act or that as per tax treaty (whichever is higher) while making payment to a non-resident. Obtaining a PAN was thus made mandatory for every non-resident, causing hardship.

Section 206AA was amended in the last Budget to provide that higher rate of TDS shall not apply to any payment made to non-residents, provided certain conditions are satisfied.

In order to give meaning and application to the amended provision of section 206AA, CBDT has inserted new Rule 37BC.

KPMG (India) Partner Tax Vikas Vasal said the rule provides the much-needed clarity.

Vasal, however, said that since the transactions between foreign and Indian companies are increasing, the requirement of furnishing the TRC should be re-evaluated, and instead the TIN of the foreign company along with other information may be considered as sufficient compliance.

“In the case of a non-resident...or a foreign company, and not having permanent account number (PAN) the provisions of Section 206AA shall not apply in respect of payments in the nature of interest, royalty, fees for technical services and payments on transfer of any capital asset, if the deducteefurnishes the details and the documents to the deductor,” the CBDT Rules said.