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Alerts:

Direct Tax Alert - CBDT exempts certain non-resident taxpayer from filing of tax return in India

25 October 2021

Background

Section 139 of the Income-tax Act, 1961 (IT Act) lays down types of taxpayers who are required to file the tax return in India. With a view to empower the Central Government to exempt any class(es) of person from the requirement of filing tax return, the Finance Act, 2011 inserted sub-section 1(C)1 in section 139 of the IT Act. In 2019, the Central Board of Direct Taxes (CBDT) issued a notification2 whereby a certain class of non-resident (not being a company) and foreign company were exempted (subject to fulfilment of prescribed conditions) from furnishing tax return from fiscal year 2018-19 onwards. Recently the CBDT issued another notification3 whereby a specified class of persons are exempted from the requirement of furnishing a tax return under section 139(1) of the IT Act from the fiscal year 2020-21 onwards.

We, at BDO in India, have analysed and summarized the said notification hereunder:

Who are covered by the exemption?

The specified class of persons exempted under the recent notification are:

Sr. No

Taxpayer

Prescribed Conditions

1

(i) A non-resident, not being a company; or

(ii) A foreign company.

(i) The said class of persons does not earn any income in India, during the previous year, other than the specified income4; and

(ii) The provisions of section 139A5 of the IT Act are not applicable to the said class of persons subject to fulfilment of conditions mentioned in Rule 114AAB(1) of the Income-tax Rules 1962 (IT Rules).

 

2

A non-resident, being an eligible foreign investor.

(i) The said class of persons, during the previous year, has made transaction only in capital asset referred to in section 47(viiab)6 of the IT Act, which are listed on a recognised stock exchange located in any International Financial Services Centre (IFSC) and the consideration on transfer of such capital asset is paid or payable in foreign currency.

(ii) The said class of persons does not earn any income in India, during the previous year, other than the income from transfer of capital asset referred to in section 47(viiab) of the IT Act; and

(iii) The provisions of section 139A of the IT Act are not applicable to the said class of persons subject to fulfilment of the conditions mentioned in Rule 114AAB(2A) of the IT Rules.

 

For the purpose of abovesaid notification:

(a) "Eligible foreign investor" means a non-resident who operates in accordance with the Securities and Exchange Board of India, circular IMD/HO/FPIC/CIR/P/2017/003 dated 4 January 2017;

(b) “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);

(c) "Recognised stock exchange" shall have the meaning as assigned to it in the Explanation 1(ii) to section 43(5) of the IT Act.

 

Are there any exceptions from the above-mentioned exemption?

The relaxation (i.e. exemption from the requirement of furnishing a return of income) shall not be available where a notice under section 142(1) or section 148 or section 153A or section 153C of the IT Act has been issued for filing a return of income for the fiscal year specified therein.

 

BDO comments:

This is a welcome Notification. With the amendment made in the definition of specified funds for the purpose of claiming exemption under section 10(4D) of the IT Act as well as in IT Rules, the erstwhile Notification exempting filing of certain class of taxpayers would not have been available. This Notification addresses this anomaly. It may be noted that while this notification is effective from fiscal year 2020-21, the amendment in Explanation (c) to section 10(4D) is effective from fiscal year 2021-22. It is also imperative to note that the filing of the tax return requirement is relaxed for a non-resident earning specified income (say royalty, fees for technical services etc.) and subject to fulfilment of prescribed conditions. Thus, where the non-resident is not able to satisfy the aforesaid criteria, they could still be able to claim the relaxation.

 

1Section 139(1C) of the IT Act: Notwithstanding anything contained in sub-section (1), the Central Government may, by notification in the Official Gazette, exempt any class or classes of persons from the requirement of furnishing a return of income having regard to such conditions as may be specified in that notification

2Notification No 55/2019/F No 225/79/2019-ITA-II dated 26 July 2019

3Notification No 119/2021/F No 225/76/2021-ITA-II dated 11 October 2021

4Income from investment in fund:

  • which has been granted a certificate of registration as a Category III Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012 or International Financial Services Centre Authority Act, 2019 (50 of 2019);
  • located in any International Financial Services Centre; and
  • of which all the units other than unit held by a sponsor or manager are held by non-residents.

5Requirement of obtaining Permanent Account Number

6Bonds or Global Depository Receipt referred to in section 115AC(1) of the IT Act or rupee denominated bond of Indian Company or derivative or such other securities as may be notified by the Central Government.