Direct Tax Alert - CBDT expands the scope of exemption for Section 206C(1G)
24 August 2022
As per Section 206C(1G) of the Income-tax Act, 1961 (IT Act), the tour operator shall be required to collect tax (TCS) at the rate of 5% in respect of overseas tour programme package. Representations were received from domestic tour operators who were facing difficulties in the collection of tax from non-resident individuals visiting India who were booking an overseas tour package from such domestic tour operators. Since such persons may not have a PAN, tax is required to be collected at higher rates. Further, such non-residents may find it difficult to furnish their tax returns and claim refunds. To remove such difficulties, the Central Government released a Press Release1 specifying that the provisions of the said section shall not apply to a non-resident individual buyer visiting India. In this regard, the Central Board of Direct Taxes (CBDT) had issued a notification2 to the exempt non-resident individual visiting India from the applicability of Section 206C(1G) of the IT Act.
Recently, the CBDT issued another Notification3 superseding its earlier notification. We, at BDO in India, have provided our comments on the same hereunder:
Recent Notification provides that Section 206C(1G) of the IT Act shall not apply to a non-resident buyer who does not have a Permanent Establishment (PE) in India. Thus, now twin conditions need to be satisfied for the exemption to apply:
1. The taxpayer (i.e., buyer) should be a non-resident;
2. Such taxpayers shouldn't have a PE in India.
The CBDT has enlarged the list of non-resident taxpayers who are exempted from the applicability of section 206C(1G) of the IT Act by exempting foreign companies, non-corporate entities like LLP, etc. It is also pertinent to note that for the non-resident individual taxpayer, the requirement of visiting India has also been done away with. However, the exemption shall be available only if the concerned non-resident buyer (of the tour package) does not have a PE in India. While granting the exemption, the collector should collate documentary evidence to satisfy that the buyer is a non-resident and does not have a PE in India.
1Press Release, dated 31-3-2022
2Notification S.O. 1494(E) [No. 20/2022/F. No. 370142/9/2022-TPL], dated 30-3-2022
3Notification No. 99/2022/F. No. 370142/9/2022-TPL dated 17-08-2022