In a move that would provide major relief to non-resident entities, the Central Board of Direct Taxes (CBDT) has eased taxation norms for NRIs by allowing them to avail lower withholding tax under Section 206AA of the Income-Tax Act without the need to provide their Permanent Account Number (PAN).
CBDT has now notified rules that provide that provisions of section 206AA shall not apply for payments in the nature of interest, royalty, fees for technical services and payments on transfer of capital asset. However, this is subject to condition that payee furnishes prescribed documents and details to payer.
The CBDT has inserted a new Rule, 37BC, which gives relaxation to non-residents from furnishing PAN number in India while claiming TDS benefits. Non-residents include foreign partnerships, foreign body corporates, besides foreign companies.
“The mandate to furnish PAN to avail lower withholding rate under section 206AA was an ordeal for non-residents. The undue hardship or practical difficulties faced by non-residents such as obtaining PAN for one-off transaction with Indian party to avoid higher withholding will be reduced to a great extent. Additionally, this would bring relief to Indian payers who were required to remit payments net of tax and thus bear a burden on account of grossing up at a higher rate.The details to be submitted such as email ID, contact number, address of resident country are simple and can be easily provided. ,” Jiger Saiya, Partner, Direct Tax, BDO India, said.
Earlier, PAN was mandatory for every non-resident for obtaining tax benefit as Section 206AA of I-T Act provided that in absence of PAN, the payer shall be liable to withhold taxes at the rate of 20% 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.
Also, prior to the present change, no TDS certificates could be generated in absence of PAN and thus apart from suffering a higher withholding, the non-residents would also encounter difficulty in claiming tax credit in their country of residence. “It remains to be seen whether appropriate changes are made to the TRACES system (TDS management system of the Income tax department) to address this difficulty,” Saiya said.