CBDT revises rules relating to furnishing information in respect of payments to nonresidents

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1 12 August mber 2012 EY Tax Alert CBDT revises rules relating to furnishing information in respect of payments to nonresidents Executive summary Tax Alerts cover significant tax news, developments and changes in legislation that affect Indian businesses. They act as technical summaries to keep you on top of the latest tax issues. For more information, please contact your Ernst & Young advisor. The Central Board of Direct Taxes (CBDT), the administrative authority for direct taxes in India, recently issued Notification No. 58/2013 [1] (Notification) revising the existing Rule 37BB (Rule) of the Income Tax Rules 1962 which prescribes the manner and forms for furnishing information electronically by a person responsible for making any payment (Remitter) to a nonresident (Recipient). The revised Rule mandates reporting of certain additional information and a new format for furnishing information in revised Forms. The revised Rule shall come into force from 1 October This Tax Alert summarizes the key features of the revised Rule in terms of additional information, key changes in the Forms and other significant amendments made by virtue of the Notification. [1] Income-tax (12 th Amendment) Rules, 2013 [F.NO.149/119/2012-SO (TPL)]/SO 2363(E), dated 5 August 2013

2 Background As per the provisions of Indian Tax Laws (ITL), a Remitter making payment of any sum chargeable to tax to a Recipient is required to withhold tax at source at the prescribed rates. With effect from 1 July 2009, such Remitter is required to furnish certain information electronically relating to the payments in such form and manner as prescribed by the CBDT vide the Rule. With a substantial increase in foreign remittance, this requirement of electronic reporting of information was introduced with the intention of tracking information of remittance outside India, so that tax recovery may be expedited [2]. The existing Rule provides for electronic furnishing of information by the Remitter in Form 15CA (Self-Declaration), while making payment to the Recipient, based on a certificate from a Chartered Accountant in Form 15CB (CA Certificate). In the present form of the Rule, the reporting is linked with the withholding obligation of the Remitter on payments chargeable to tax in India. Notification [1] The Notification revises the Rule, with effect from 1 October 2013, to provide for a new manner and format of furnishing information by the Remitter in respect of all remittances to a nonresident. The revised Rule provides for different formats of furnishing of information in three circumstances, viz., Sl. Particulars No. 1. Nature of remitance 2. Contents of Self- Declaration 3. Whether CA Certificate requireed? Part A Part B Part C Small payments by Remitter not exceeding INR and aggregate of such payments during the tax year not exceeding INR Remittance may or may not be chargeable to tax. Specified Payments[3] not chargeable to tax in India Any other payments chargeable to tax Revised (Discussed hereafter under Significant features of the revised Self-Declaration ) No No, with a declaration of bonafide belief of Remitter about nontaxability of the payment under the ITL. Significant features of the revised Self- Declaration Part A- Small remittances Self-Declaration includes: General information of the Remitter, Recipient like contact details, PAN etc. Information relating to the proposed remittance like details of bank, nature of remittance, taxes withheld, and if taxes are not withheld, brief reasons for the same. An aggregate amount of remittance made by the Remitter during the tax year (including the proposed remittance). Yes. If tax withholding order not obtained from tax authority. Remitter is also required to verify the genuineness of information furnished and undertake to co-operate with tax authority by furnishing requisite documents for determining taxable income of Recipient or tax withholding liability of Remitter under the ITL. [3 ] A Specified list of 39 payments is provided under the revised [2 ] Please refer EY Tax Alert dated 6 April 2009 titled CBDT prescribes rules for furnishing information in respect of payments to non-residents Rule which includes, inter alia, payments for outbound investments, loans, import settlements, transactions by shipping companies, personal transactions (like donations, gifts), construction of projects abroad, payment towards international bidding etc.

3 Part B Specified payments Procedure of filing the Self-Declaration This is a new reporting in respect of the specified payments [3] which is not chargeable to tax in India. The information sought as a part of Self- Declaration is similar to Part A. Information may be furnished without obtaining a CA Certificate with a declaration of a bonafide belief of Remitter about non-taxability of the payment under the ITL. In addition to an undertaking, as prescribed in Part A (as stated above), the Remitter also undertakes the liability to pay any taxes due along with the interest and penalty in case it is found that the remittance was taxable in India. Once the Remitter furnishes the above information (as applicable) on Government s designated website, a signed hard copy of the Self-Declaration is required to be submitted to the Bank prior to remitting the payment. The revised Rule also empowers any tax authority to obtain a copy of Self-Declaration from the remitting Bank for the purpose of any proceedings under the ITL. Part C (and CA Certificate) Other chargeable payments The information required under Part C is more detailed and largely similar to the existing Self-Declaration. Such information should be based on the CA Certificate or tax withholding orders obtained from tax authorities. Broadly, Part C includes: General information on Remitter, Recipient similar to Part A/B; details of CA certificate and orders from tax authority Information regarding the remittance (like nature of payment, Bank, BSR Code, country of Recipient etc.) Detailed information on taxability of payment under the ITL as well as tax treaty, basis on treating income as not chargeable to tax as also for nonwithholding [4] etc. Details about a tax residency certificate where a tax treaty is invoked. [4] Presently, a similar but broader reporting is limited to passive income streams only (like royalty, FTS, interest, dividend etc.).

4 Comments This amendment, yet again, highlights current trend with the Indian tax administrators to enhance, broad base and strengthen mechanism of collecting information particularly in the context of overseas remittances. The revised Rule seeks to widen the ambit of reporting remittances outside India and covers all payments even if they are claimed to be non-chargeable to tax in India. The undertaking obtained as part of Self-Declaration does mandate Remitter to provide requisite details and documents so as to enable tax authorities to evaluate tax liability in India. Tax deductors need to comply with the revised Rule which come in effect from 1 October 2013 and until that date, information would be furnished as per the present Rule in the existing forms. Additionally, by an amendment to the ITL in 2012, the CBDT is empowered to notify such class of persons to make an application to the tax authorities for determining sum chargeable to tax, by general or special order, and such person would be required to furnish the information as may be prescribed. While this is yet to be prescribed, the trend highlights the focus on collection of information for enforcing tax compliances in India.

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