Withholding Tax- Recent Procedural Developments

Article by: CA. Abhishek Nagori

Section 195 [(6) states that “The person referred to in sub-section (1) shall furnish the information relating to payment of any sum in such form and manner as may be prescribed by the Board.”. Under this Section CBDT notified Rule 37 BB (Form 15CA and 15CB) inserted with effect from July 1, 2009.

Recently, CBDT has issued Twelfth Amendment Rules on August 5, 2013 vide Notification No. 58/2013 whereby it amended Rule 37BB and prescribed new Forms 15CA and 15CB. However, within a couple of weeks, the CBDT issued one more amendment to Rule 37BB in suppression of earlier notification (amendment rules) Notification No. 67 dated 02-09-2013.

As per new Notification No. 67 dated 02-09-2013, substituted Rule 37 BB has changed filing requirements :

Form 15 CA is in two parts- Part A and Part B

Part A- is applicable if transaction does not exceed Rs. 50,000/- and aggregate payment in year does not exceed Rs. 2,50,000/- (Both conditions should be fulfilled)

Such cases, where Part A is applicable, are also absolved from obtaining Form 15CB

Part B- is applicable if transaction exceeds Rs. 50,000 or aggregate aggregate payment in year exceeds Rs. 2,50,000/-

After obtaining

- CA Certificate in Firm 15CB; or

- Certificate u/s 197; or

- order u/s 195(2) and 195(3).

Form 15 CB – is to be issued by a practicing Chartered Accountant, in hardcopy

Form 15CA – is to be filed electronically and then printout to be submitted to authorized dealer remitting the payment.

E-filing Revised Form 15CA

Form 15CA, relating to any payment chargeable to income tax (to a non-resident, not being a company or to a foreign company), is available on e-Filing portal. A remitter/ deductor can view and file revised Form 15CA through following procedure :-

1. Login on the e-filing portal at the following link – https://incometaxindiaefiling.gov.in/e-Filing/UserLogin/LoginHome.html

2. Visit the link – e-file → Prepare and Submit Online Form (Other than ITR) → Select From and Assessment year. Form is to be digitally signed before e-filing.

Form 15CA online filing procedure on e-portal is having certain practical problems:

a) Only one person can login at one point of time. Organizations with large number of locations having separate TAN numbers will face problems because different locations cannot login simultaneously.

b) The Form 15CA is to be digitally signed by the person authorized to sign Income Tax return as per new e-filing procedure. In case of large organizations (and especially multi-location organizations), this may not be practically possible. And, also the person responsible to deduct and pay TDS may be different than person authorized to file Income Tax Return.

c) The old Form 15 CA was available till recently (even after 01.10.2013) on the website “www.tin-nsdl.com’ and it was active. Many assessees, not aware about the fact that new Form 15 CA is available on e-filing portal, have used the old form even after new form is available. The Income Tax Department. has not put any notification on NSDL Portal where assessee is visiting to e-file Form 15CA.

Specified List

Sepcified list containing 28 items is given in Explanation to Rule 37BB contains Specified List. The Explanation 2 to Rule 37BB, starts with words “For removal of doubts, it is hereby clarified that for the payments of the nature specified in the column (3) of Specified List given below, no information is required to be furnished under Sub-Rule (1)”. So, the explanation clearly absolves 28 items in Specified List from requirement of filing Form 15CA and Form 15 CB.

The 28 items are as under:

Specified List

SI. No.-Purpose code as per RBI -Nature of payment

1-S0001-Indian investment abroad-in equity capital (shares)
2-S0002-Indian investment abroad-in debt securities
3-S0003-Indian investment abroad-in branches and wholly owned subsidiaries
4-S0004-Indian investment abroad-in subsidiaries and associates
5-S0005-Indian investment abroad-in real estate
6-S0011-Loans extended to Non-resident
7-S0202-Payment for operating expenses of Indian shipping companies operating abroad
8-S0208-Operating expenses of Indian Airlines companies operating abroad
9-S0212-Booking of passages abroad- Airlines companies
10-S0301-Remittance towards business travel
11-S0302-Travel under basic travel quota (BTQ)
12-S0303-Travel for pilgrimage
13-S0304-Travel for medical treatment
14-S0305-Travel for education (including fees, hostel expenses etc.)
15-S0401-Postal services
16-S0501-Construction of projects abroad by Indian companies including import of goods at project site
17-S0602-Freight insurance- relating to import and export of goods
18-S1011-Payment for maintenance of offices abroad
19-S1201-Maintenance of Indian Embassies abroad
20-S1202-Remittances by foreign embassies in India
21-S1301-Remittance by non-residents towards family maintenance and savings
22-S1302-Remittance towards personal gifts and donations
23-S1303-Remittance towards Donations to religious and charitable institutions abroad
24-S1304-Remittance towards grants and donations to other governments and charitable institutions established by the government
25-S1305-Contributions or donations by the Government to international institutions
26S1306-Remittance towards payment or refund of taxes
27-S1501- Refund or rebates or reduction in invoice value on account of exports
28- S1503- Payments by residents for international bidding

The issues which arise by insertion of specified list are as follows:

(i) If the filing of Form 15CA and Form 15CB is to be done in cases of taxable payments only, then why specified list is given listing only 28 items.

(ii) From the use of words “For removal of doubts, it is hereby clarified..” which restricts relaxation to 28 items, it appears that the relaxation from filing of Form 15CA and Form 15CB is available to these 28 items only.

(iii) Many problems will arise, for example in case of raw material import payments, where the payment to non-resident is not taxable in India. The payments for raw material import are not covered under in Specified List. It appears that the filing of Form 15CA and Form 15 CB will be necessary in such types of transactions. The transactions of such type are voluminous in many organizations. This will increase unnecessary procedural burden.

(iv) Some clarification from Board is needed, regarding filing requirement in case of transactions where payments is being made which is not taxable in India and where such payment is not covered by Specified List.

Anomalies in new Form 15CB

New Form 15CB contains some points which need to be clarified:

(i) In row no. 2 “amount payable” is asked in both “In Indian Rupees” and “ In Foreign Currency”

(ii) In row no. 8 related to “Taxability under the provisions of Income Tax Act (without considering DTAA)- in sub clauses “(b) the amount of income chargeable to tax” and “(c) tax liability”- it is not mentioned that the amount should be given “In Indian Rupees” or “ In Foreign Currency”.

(iii) Whereas in row no. 9 related to “If any relief is claimed under DTAA” in sub-clauses “(iv) taxable income as per DTAA” and “(v) tax liability as per DTAA”- it is clearly mentioned that the amount should be given “In Indian Rupees”.

(iv) So in above points no. (i), (ii) and (iii) it can be observed that at some places, amount is asked in both currencies, at some place only one currency is asked and at some place currency is not clearly mentioned.

Somersaults over Tax Residency Certificate (TRC)

In last two years the provisions related to Tax Residency Certificate (TRC) have undergone many twists and turns. Recently in Finance Bill 2013, some provisions created lot of uproar and subsequently those proposals were withdrawn by the Honorable Finance minister. The developments related to TRC are summarized below:

· Section 90 (4) was introduced by the Finance Act 2012, which made the TRC mandatory to claim DTAA benefit. The Section made it mandatory that the TRC submitted should contain the ‘prescribed particulars’ and it should be issued by the Government of the country of which the non-resident claims to be resident.

As per the requirements of Sub-section (4) of Section 90, subsequently Rule 21AB and Form 10FA and 10FB introduced by Notification dated 17-09-2012 (w.e.f. 01-04-2013).

Rule 21AB prescribed the particulars which should be contained in TRC to be submitted by non-resident regarding country of residence to avail DTAA benefit. Form 10FA is format of application by a person to obtain TRC from Indian Income Tax Department and Form 10FB is format of TRC to be issued by Indian Income Tax Department.

· The practical problems faced by the non-resident entities were as follows:

(i) The revenue authorities of concerned countries have their own TRC format in which they issue TRC.

(ii) The revenue authorities’ of concerned countries were not giving TRC containing particulars prescribed by Rule 21AB.

This problem was solved by rationalization in provisions by the Finance Act 2013- Through amendment in Sub-section (4) of Section 90, the words “…a certificate containing such particulars as may be prescribed , for his being a resident… “ were substituted by ” …a certificate of his being a resident….” . This amendment gave validity to TRC submitted by non-resident in the format of the Contracting State..

The Finance Bill 2013, proposed the insertion of new Sub-section (5) in Section 90 stating that “TRC will be necessary but not sufficient evidence..”. It created lot of apprehension in minds of the public and it became major of concern for foreign investors also. Immediately, the Finance Ministry issued Press Release on March 1, 2013 stating that the TRC will not be questioned.

As per intention given in Press Release, subsequently in the Finance Act 2013, Subsection (5) of Section 90 came in totally new format– ‘Section 90 (5)- The assesse referred to in Sub-section (4) shall also provide such other documents and information, as may be prescribed.” This gives finality to TRC as a proof of residency. By this provision, requirement of furnishing of some additional documents and information has been introduced.

Subsequently as per the requirement of newly inserted Section 90 (5), Notification No. 57 dated 01-08-2013 prescribed Form 10 F and amended Rule 21AB. To claim benfit of DTAA, Form 10 F is to be signed and submitted by non- resident along-with TRC obtained from Government of his country of residence.

Conclusion

The procedure of filing of Form 15CA and Form 15CB needs to be stream-lined looking to many practical problems as discussed in above paragraphs. We expect some simplification in days to come by way of procedural changes. The few features on e-filing portal, like allowing multiple users in case of same assesse to login and allowing different digital signatures at different locations having separate TAN are very essential. A circular, clarifying requirement of filing of Form 15CA and Form 15CB in cases of payments which are not chargeable to tax, will save taxpayers form unnecessary procedural burden. We hope these problems will be resolved soon.

CA. Abhishek Nagori

+91-94260-75397
abhishek.nagori@jlnus.com