OIL AND NATURAL GAS CORPORATION LTD. CORPORATE TAX DIVISION Old Secretariat Building, Tel Bhawan Dehra Dun- 248 003 Tel: 0135-2793833 Fax: 0135-2758518 Annexure to Circular No. CTD/Circ./TDS/2017-18/01 dated 05-04-2017 INDEX OF CONTENTS Sl. No. Particulars Page No. A. Tax Deduction at Source 3 A1. Sums Payable to Residents 3 1. Interest other than interest on securities 3 2. Payments to contractors and sub-contractors 4 3. Commission or brokerage payments 6 4. Rental Payments 6 5. Payments on transfer of certain Immovable Property other than Agriculture Land 7 6. Payments made by way of Fee for Technical/Professional Services or Royalty 8 7. Payments of Compensation or Enhanced Compensation 11 A2. Sums Payable to Non-residents 11 8. Payment to non-resident sportsmen/sports association 11 9. Payments of specified interest by Indian company to a non-resident 12 10. Payments of interest on Rupee denominated bond of Indian company to FIIs & QFIs 13 11 Other Payments to Non-residents 13 A3. Time of Tax Deduction 16 A4. Tax on Reimbursements and Advance Payments 17 A5. TDS on Service Tax 17 A6. Rates at which Tax is to be Deducted at Source 18 A7. When Tax is Deductible at Lower Rate or not Deductible 23 A8. When Tax is Deductible at Higher Rate 25 A9. TDS From Payments to Government, Reserve Bank, etc. 27 A10. Time Limit for Deposit of Tax Deducted in Government Account 28 A11. Filing Of Statements of Tax Deducted at Source 28 A12. Quoting of Deductee PAN 30 A13. Issue of Certificate of Tax Deducted at Source 31 A14. Consequence of Failure/Delay in Deduction and/or Deposit of Tax 31 A15. Consequence of non-furnishing of information regarding Non-resident remittances in 33 Form 15CA or furnishing inaccurate information A16. Certain Clarifications on Deduction of Tax at Source 33 B. Tax Collection At Source 37 1. Rates at Which Tax is to be collected 38 2. Deposit of Tax Collected at Source 39 3. Consequence of Failure to Collect Tax at Source or to Deposit Tax Collected at Source 40 4. Filing of Statement of Tax Collected at Source and Consequence of Failure to do so 41 P a g e 1 46
5. Issue of Certificate of Tax Collected at Source and Consequence of Failure to do so 41 C. Obtaining and quoting of Tax Deduction and Collection Account Number and 42 Consequence of Failure to do so. D. Declaration for non-filing of TDS and TCS Statements 42 E. Service of Notices, Orders, etc. by Income Tax Department 43 F. Use of Tax Rates maintained in SAP 43 G. Equalization Levy 44 P a g e 2 46
OIL AND NATURAL GAS CORPORATION LTD. CORPORATE TAX DIVISION Old Secretariat Building, Tel Bhawan Dehra Dun- 248 003 Tel: 0135-2793833 Fax: 0135-2758518 Annexure to Circular No. CTD/Circ./TDS/2017-18/01 dated 05-04-2017 Deduction and Collection of Tax at Source during Financial Year 2017-18 Under the provisions of the Income-tax Act, 1961 (Act), tax is required to be deducted or collected at source from certain payments made/credits afforded to, or receipts from/debits made to Individuals, HUFs, Firms, Companies, etc., at the specified rates. The amount of tax so deducted or collected at source is to be deposited in Government account within the prescribed time limit and a certificate in the prescribed Form is to be issued to the payee or payer (in case of Tax Collection at Source) within the prescribed time limit. Failure to comply with the above provisions may attract levy of interest and penalty and other adverse consequences. The relevant sections and the provisions thereof in this regard for the financial year 2017-18, other than those regarding TDS from Salaries for which a separate circular is being issued, are summarized below for information and compliance. A. TAX DEDUCTION AT SOURCE (TDS) A1. Sums payable to Residents: Residential status of the payee is determined as per the provisions of the Act. Every Indian company and every other company whose Place of Effective Management is in India is considered to be resident in India. For this purpose, Place of Effective Management means a place where key management and commercial decisions that are necessary for the conduct of business of an entity as a whole are, in substance made. Every Hindu Undivided Family (HUF), firm or other association of persons is considered to be resident in India during a year unless the control and management of its affairs is situated wholly outside India during that year. An individual is considered to be resident in India in any year if he- (a) (b) is in India in that year for a period or periods amounting in all to 182 days or more, or having within the four years preceding that year been in India for a period or periods amounting in all to 365 days or more, is in India for a period or periods amounting in all to 60 days (182 days in certain situations) or more in that year. SECTION 194A - Interest other than Interest on Securities : Tax is required to be deducted at source under section 194A of the Act from any income by way of interest, other than income by way of interest on securities, at the time of payment to/credit to the account of the payee. P a g e 3 46
Tax has to be deducted every time if the total amount of interest paid or credited during the financial year exceeds or is likely to exceed ` 5,000/= [Rupees Five Thousand] (` 10,000/= [Rupees Ten Thousand] in case the payer is a banking company). Where it is expected at the time when earlier payments/credits are made, that the total payments/credits during the year would not exceed ` 5,000/= [Rupees Five Thousand], or, as the case may be, ` 10,000/= [Rupees Ten Thousand], but, contrary to such expectations, it is found that the payments/credits exceed that amount, deduction of tax should be made from subsequent payments/credits within that year in respect of tax not deducted on earlier payments/credits as well. In the case of interest on cumulative deposits, tax is required to be deducted every time interest is credited and the same should not be postponed till the maturity of the deposit. Tax is not required to be deducted at source under this section in the following cases:- (a) If the interest is credited or paid:- i) to any banking company to which the Banking Regulation Act, 1949, applies or to any co-operative society engaged in carrying on the business of banking, or ii) iii) iv) to any financial corporation established by or under a Central, State or Provincial Act, or to the Life Insurance Corporation of India or the Unit Trust of India, or to any company or co-operative society carrying on the business of insurance, or v) to such other institution, association or body, or class of institutions, associations or bodies which the Central Government may notify in this behalf in the Official Gazette, or vi) in relation to a zero coupon bond issued on or after 1 st June 2005. (b) No tax is required to be deducted at source from any sums credited by way of interest on the compensation awarded by Motor Accidents Claims Tribunal. Tax would, however, need to be deducted at the time of payment of such sums if the amount or aggregate amount thereof during a financial year exceeds ` 50,000/=. (c) Tax is also not required to be deducted at source under this section in respect of the difference between the issue price and face value of the commercial papers and certificates of deposits as such difference is in the nature of discount allowed and not interest. Similarly, tax is not required to be deducted under section 194A of the Act from a part of purchase installment payable by a hirer under a hire purchase contract. SECTION 194C - Payments to Contractors and Sub-contractors: Tax is required to be deducted at source under section 194C of the Act from any sum paid/payable to any resident contractor for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract entered into between the contractor and contractee, at the time of credit of such sum to the account of contractor or at the time of payment thereof in cash or by issue of a cheque or draft or any other mode, whichever is earlier. Tax under the aforesaid section is required to be deducted from each and every credit/payment if a single credit/payment exceeds or is likely to exceed ` 30,000/= [Rupees Thirty Thousand] OR if the aggregate credits/payments during the financial year exceed or are likely to exceed ` 1,00,000/= [Rupees One Lakh]. P a g e 4 46
Where it is expected at the time when the initial credits/payments are made that the total credits/payments during the financial year would not exceed ` 1,00,000/= [Rupees One Lakh], but, contrary to such expectations, it is found that the total credits/payments exceed that amount, deduction of tax should be made from subsequent credits/payments within that financial year in respect of tax not deducted on earlier credits/payments as well. However, no deduction shall be made from any sum credited or paid or is likely to be credited or paid during the financial year to the account of the contractor during the course of business of plying, hiring or leasing goods carriages where such contractor owns ten or less goods carriages at any time during the relevant financial year and furnishes a declaration to this effect along with his Permanent Account Number (PAN) to the person paying or crediting such sum. The person responsible for paying or crediting any sum to the contractor carrying on the business of plying, hiring or leasing goods carriages, shall have to furnish to the prescribed income tax authority or authorized person such particulars in this regard in such form and within such time as would be prescribed by Central Board of Direct Taxes (CBDT) later. For the purposes of this section, WORK shall include advertising, broadcasting and telecasting including production of programmes for such broadcasting or telecasting, carriage of goods or passengers by any mode of transport other than by railways, catering, and manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer. Cases of manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer, are not included in the meaning of work and, hence, tax is not deductible in such cases u/s. 194C of the Act. Section 194C not only covers sums payable under a written, express or formal contract, but also those payable under an oral or implied contract. Hence, existence of a written contractual document is not necessary for the provisions of section 194C to be attracted. In the case of manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, tax is required to be deducted from the invoice value excluding the value of material, if such value is mentioned separately in the invoice, or on the whole of the invoice value, if the value of material is not mentioned separately in the invoice. CBDT has, vide circular no. 09/2012 dated 17-10-2012, clarified that, in the case of Owner/ Seller of natural gas who sells as well as transports natural gas to the purchaser till the point of delivery, where the ownership of the natural gas is simultaneously transferred to the purchaser, the manner of raising the sale bill i.e., whether or not the transportation charges are embedded in the cost of natural gas or shown separately, does not alter the basic nature of the contract which remains essentially a contract for sale and not a works contract as envisaged in section 194C of the Act and, hence, in such circumstances, provisions of the Act dealing with TDS are not applicable on the component of Gas Transportation Charges paid by the purchaser to the Owner/Seller of the natural gas. CBDT has also clarified that the use of different mode of transportation of natural gas by Owner/Seller of natural gas will also not alter the position. While the aforesaid circular has been issued by CBDT in the context of natural gas, it is felt that the need for determining whether a contract is a contract for sale or a works contract is the fundamental issue emerging from the said circular and, therefore, the same would be relevant for similar situations in the cases of products other than natural gas. In view of the aforesaid, if a bill is raised by ONGC for sale of natural gas, crude oil or any other product, as well as for transportation charges upto the delivery point where ownership of the same gets transferred to the purchaser, no TDS ought to be effected by the purchasers on the said component of transportation charges included in such bill. However, if a bill is raised/includes any amount towards charges for P a g e 5 46
transportation of natural gas, crude oil or any other product beyond the point where ownership of the same gets transferred to the purchaser, TDS would be required to be effected by the purchaser on such amount. For clarifications on deduction of tax at source under section 194C, please refer to clarification numbers 1 to 6, 11, 16, 17 & 19 on pages 33, 34, 35, & 36. SECTION 194H - Commission or Brokerage payments: In the case of commission (other than insurance commission) or brokerage payments made/credits given to a resident payee, tax is required to be deducted at source under section 194H of the Act if the commission or brokerage paid/credited or likely to be paid/credited during the financial year exceeds ` 15,000/= [Rupees Fifteen Thousand]. COMMISSION OR BROKERAGE, for the purposes of this section, includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities. It may be noted that whether a particular sum credited/paid is subject to TDS u/s. 194H would need to be determined on analysis of the service, etc. for which such sum is payable in light of the aforesaid definition of Commission or Brokerage and not merely on the basis of whether the same is termed as Commission or Brokerage. PROFESSIONAL SERVICES means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other notified profession. The professions of authorized representative, film artist, Company Secretary, and information technology have been notified for this purpose. The term authorized representative means a person, who represents any other person, on payment of any fee or remuneration, before any Tribunal or authority constituted or appointed by or under any law for the time being in force, but does not include an employee of the person so represented or a person carrying on legal profession or a person carrying on the profession of accountancy. For clarifications on deduction of tax at source under section 194H, please refer to clarification numbers 7 and 8 on page 34. SECTION - 194-I - Rental payments: In the case of rental payments made/credits given to a resident, tax is required to be deducted at source under section 194-I of the Act, if the rent paid/credited during the financial year exceeds or is likely to exceed ` 1,80,000/= [Rupees One Lakh Eighty Thousand]. Tax is also required to be deducted on rent paid in advance as also on non-refundable deposit. RENT, for the purposes of this section, means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,- (a) (b) land; or building (including factory building); or P a g e 6 46
(c) (d) (e) (f) (g) (h) land appurtenant to a building (including factory building); or machinery; or plant; or equipment; or furniture; or fittings, whether or not any or all of the above are owned by the payee. Tax is not required to be deducted at source under this section from any sum payable by way of rent to a business trust, being a real estate investment trust, in respect of any real estate asset owned directly by such business trust. It has been held in certain judicial pronouncements that the expression rental denotes the consideration paid in a transaction of lease or hire; such transaction pre-supposes the transfer of interest in the property or goods; and the right to exclusive possession/custody and enjoyment thereof over a stipulated period of time are its necessary attributes. Thus, whether a particular case is a case of taking certain equipment on rent or a case of getting work done by a contractor for which the contractor may be using its equipment, would need to be seen in the facts & circumstances of the case and the intention of parties as evident from the terms of the relevant contract. Whether a right to exclusive possession/custody and enjoyment thereof over a stipulated period of time is being made available under the contract to ONGC or not, would be a very important consideration in determining whether the contract is for taking certain equipment on rent or for getting work done by a contractor which may involve use of equipment by the contractor. For clarifications on deduction of tax at source under section 194-I, please refer to clarification numbers 1, 9 to 14, 16 & 18 on pages 33, 34, 35 and 36. SECTION 194-IA Payments made by way of consideration for transfer of Land (other than Rural Agricultural Land) and Building: In case of payment/credit to a resident transferor of any sum by way of consideration for transfer of any immovable property, not being in the nature of compensation or enhanced compensation on account of compulsory acquisition as envisaged in section 194LA of the Act, tax is required to be deducted at source under section 194-IA of the Act. For this purpose, immovable property means land (other than rural agricultural land) or any building or part of a building. However, tax is not required to be deducted at source under section 194-IA if consideration for transfer of immovable property is less than ` 50,00,000/= [Rupees Fifty Lakh]. It is noteworthy that only rural agricultural land has been excluded from the ambit of the aforesaid section 194-IA of the Act. Hence, provisions of this section would apply to sums payable by way of consideration for transfer of all kinds of urban lands, whether agricultural or not, and to sums payable by way of consideration for transfer of rural non-agricultural land. Rural agricultural land would mean agricultural land other than that situated (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, P a g e 7 46
town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand, or (b) in any area within the distance, measured aerially, (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. For this purpose, population means the population according to the last preceding census of which the relevant figures have been published before the first day of the financial year. In this regard, reference is also invited to circular no. CTD/Circ./Agricultural Land/2015-16/8 dated 31-12-2015. SECTION 194J - Payments made by way of Fee for Professional Services or Fees for Technical Services or Royalty, etc.: In the case of any sum paid/credited to a resident - (a) (b) (c) (d) (e) by way of fees for professional services, or by way of fees for technical services, or by way of any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192 (TDS from salaries), to a director of a company; or by way of royalty, or under an agreement for not carrying out any activity in relation to any business or profession, or not sharing any know-how, patent, copyright, trade mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision of services, tax is required to be deducted at source u/s. 194J of the Act, if the amount paid/credited during the financial year exceeds or is likely to exceed ` 30,000/= [Rupees Thirty Thousand]. PROFESSIONAL SERVICES means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or any other notified profession. The professions of authorized representative, film artist, Company Secretary and information technology have been notified for this purpose. The term authorized representative means a person, who represents any other person, on payment of any fee or remuneration, before any Tribunal or authority constituted or appointed by or under any law for the time being in force, but P a g e 8 46
does not include an employee of the person so represented or a person carrying on legal profession or a person carrying on the profession of accountancy. The Central Board of Direct Taxes (CBDT) has also notified the services rendered by the following persons in relation to sports activities as Professional Services for the purpose of section 194J, namely:- (i) (ii) Sports Persons, Umpires and Referees, (iii) Coaches and Trainers, (iv) Team Physicians and Physiotherapists, (v) Event Managers, (vi) Commentators, (vii) Anchors, and (viii) Sports Columnists. As regards any remuneration, fees or commission, by whatever name called, payable to a Director of a company, if TDS u/s. 192 i.e., TDS from salaries, is deductible therefrom, no further TDS is required to be deducted from such sums u/s. 194J. FEES FOR TECHNICAL SERVICES means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration paid to an employee of the payer for any such services. The Hon ble Supreme Court has, in the case of GVK Industries Ltd. vs. ITO, 371 ITR 453, held that, where the payer availed of consultancy services for raising required finance from international organizations on most competitive terms, payment made for rendering such consultancy services amounted to 'fee for technical services'. ROYALTY means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head Capital gains) for- (i) (ii) (iii) (iv) (iva) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; P a g e 9 46
(v) (vi) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or the rendering of any services in connection with the activities referred to in (i) to (iv), (iva) and (v) above. In regard to the definition of Royalties, the following Explanations have been inserted therein with retrospective effect from 01-06-1976:- (i) The transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a license) irrespective of the medium through which such right is transferred. (ii) Royalty and has always included includes consideration in respect of any right, property or information, whether or not:- (a) (b) (c) the possession and control of such right, property or information is with the payer; such right, property or information is used directly by the payer; the location of such right, property or information is in India. (iii) The expression process includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret. In light of the aforesaid, care needs to be taken to ensure that TDS is effected from sums payable to residents for procurement, installation, customization, repair, maintenance, etc., of software or for acquiring any rights in, or right to use, any other intellectual property, u/s. 194J. CBDT has, vide Notification dated 13-06-2012, clarified that no deduction of tax shall be made under section 194J of the Act from sums payable by a person (transferee) for acquisition of software from another person (transferor), being a resident where:- (i) software is acquired in a subsequent transfer and the transferor has transferred the software without any modification; (ii) tax has been deducted:- (a) under section 194J of the Act on payment for any previous transfer of such software; or (b) under section 195 of the Act on payment for any previous transfer of such software from a non-resident; and (iii) the transferee obtains a declaration from the transferor that the tax has been deducted at source under sub-clause (a) or (b) of clause (ii) above along with the Permanent Account Number of the transferor. Benefit of the aforesaid Notification would be available only in respect of sums payable towards acquisition of software subject to fulfillment of the aforesaid conditions cumulatively. Further, the benefit of the Notification would not be available if payments towards procurement of software are to be made to a non-resident. P a g e 10 46
As brought out in circular no. CTD/Circ./TDS-Telecom/2015-16/6 dated 10-08-2015, as per opinion obtained from an eminent tax expert, it would be advisable for ONGC to effect TDS from sums payable for the following also- a. Hiring of Transponders on satellites for transmission of signals from remote location to earth stations. b. Rental of dedicated/lease line/virtual Private Network services for transmission of voice and data traffic. c. Power transmission or power wheeling to entities owning power grids. For clarifications on deduction of tax at source under section 194J, please refer to clarification numbers 6, 15 & 19 on pages 34, 35 & 36. SECTION 194LA - Payments of Compensation or Enhanced Compensation: In the case of payments to a resident of Compensation/Consideration or Enhanced Compensation/Consideration for the compulsory acquisition, under any law for the time being in force, of any immovable property, other than agricultural land, tax is required to be deducted at source under section 194LA of the Act at the time of payment. However, if the aggregate payment to a resident during a financial year does not exceed ` 2,50,000/=[Rupees Two Lakh Fifty Thousand], tax is not required to be deducted under this provision. It may be noted that both rural as well as urban agricultural lands have been excluded from the ambit of section 194LA unlike in the case of section 194-IA (dealing with TDS on transfer of an immovable property otherwise than by compulsory acquisition) where TDS is not applicable only in the case of rural agricultural land. In this regard it is also relevant to note that the Hon ble Supreme Court has, in the case of CIT vs. Ghanshyam (HUF), reported at 315 ITR 1, held that interest u/s. 28, additional amount u/s. 23(1- A) and solatium u/s. 23(2) of the Land Acquisition Act, 1894, forms part of compensation. Hence, if these are also paid on account of compulsory acquisition of non-agricultural land, they would also be included in computing the total amount of compensation and would be subject to TDS u/s. 194LA accordingly. The Finance Act, 2017 has amended the provisions of section 194LA to provide that TDS u/s. 194LA is not required to be deducted where the amount is payable in respect of an award or agreement which has been exempted from levy of income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. Hence, TDS is not required to be effected u/s. 194LA in such cases. A2. Sums payable to Non-Residents SECTION 194E Payments to Non-resident Sportsmen/Sports Associations: Tax is required to be deducted at source from the following incomes paid/credited by a payer:- (a) to a sportsman (including an athlete), who is not a citizen of India and is a non-resident, for (i) participation in India in any game (other than a game the winnings wherefrom are taxable under section 115BB) or sport; or P a g e 11 46
(ii) advertisement; or (iii) contribution of articles relating to any game or sport in India in newspapers, magazines or journals; (b) to a non-resident sports association or institution, any amount including an amount guaranteed to be paid or payable to such association or institution in relation to any game (other than a game the winnings wherefrom are taxable under section 115BB) or sport played in India; or (c) to an entertainer, who is not a citizen of India and is a non-resident, for his performance in India. An entertainer would include persons such as theatre, radio or television artists, and musicians. However, sums payable to other persons who could be considered as entertainers would also be subject to tax deduction u/s. 194E. Tax is required to be deducted at source at the time of crediting such income to the account of the payee or at the time of payment thereof, whichever is earlier. SECTION 194LC Payments of specified interest by Indian company to a non-resident Under section 194LC of the Act, tax is required to be deducted @ 5% at the time of credit to the account of the payee or at the time of payment, whichever is earlier, of interest to a non-resident in respect of- (i) money borrowed in foreign currency from a source outside India:- (a) under a loan agreement at any time on or after the 1st day of July, 2012 but before the 1st day of July, 2020, or (b) by way of issue of long-term infrastructure bonds at any time on or after the 1st day of July, 2012 but before the 1st day of October, 2014; or (c) by way of issue of any long-term bond including long-term infrastructure bond at any time on or after the 1st day of October, 2014 but before the 1st day of July, 2020; as approved by the Central Government in this behalf; or (ii) money borrowed from a source outside India by way of issue of rupee denominated bonds before the 1 st day of July, 2020. The aforesaid lower rate of TDS would be available only if such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan or the bond and its repayment. It may be noted that in respect of any payment of interest to a non-resident, if the provisions of this section are not applicable owing to non-satisfaction of any of the aforesaid conditions, the provisions of section 195 shall apply for the purposes of TDS. Provisions of section 206AA dealing with TDS at higher rate where payee does not furnish its Indian Permanent Account Number (PAN) are not applicable in cases where tax is required to be deducted at source under section 194LC from interest on long-term bonds referred to therein. P a g e 12 46
However, in all other cases of non-resident remittances (including interest payable under a loan agreement as referred to in section 194LC), the provisions of section 206AA are not applicable only if the non-resident payee furnishes the following prescribed information:- (a) name, e-mail id, contact number; (b) address in the country or specified territory outside India of which the deductee is a resident; (c) a certificate of his being resident in any country or specified territory outside India from the Government of that country or specified territory i.e., a Tax Residency Certificate or TRC for short, if the law of that country or specified territory provides for issuance of such certificate; (d) Tax Identification Number of the deductee in the country or specified territory of his residence and in case no such number is available, then a unique number on the basis of which the deductee is identified by the Government of that country or the specified territory of which he claims to be a resident. Thus, while exemption from the provisions of section 206AA in respect of TDS deducted at source under section 194LC from interest on long-term infrastructure bonds, interest on any long-term bond including long-term infrastructure bond and interest on rupee denominated bonds is available without any specific requirement of furnishing any information by the nonresident, the same would be available to other non-resident remittances (including interest payable under a loan agreement referred to in section 194LC of the Act) subject to furnishing of the aforesaid prescribed information by the non-resident. SECTION 194LD Payments of interest on Rupee denominated bond of Indian company to FIIs & QFIs Under section 194LD of the Act, tax is required to be deducted at the time of credit to the account of the payee or at the time of payment, whichever is earlier, of interest on a Rupee denominated bond of an Indian Company payable to a Foreign Institutional Investor (FII) or a Qualified Foreign Investor (QFI) on or after the 1st day of June, 2013, but before the 1st day of July, 2020, subject to the condition that the rate of interest on the bond does not exceed the rate notified by the Central Government in this behalf. It may be noted that in respect of any payment of interest to an FII or QFI, if the provisions of this section are not applicable owing to non-satisfaction of any of the aforesaid conditions, the provisions of section 195 shall apply for the purposes of TDS. SECTION 195 Other Payments to Non-residents: In the case of payment/credit of any sum, other than Salaries, and other than those covered u/s. 194E or 194LC or 194LD, made to a non-resident, tax is required to be deducted at source under section 195 of the Act. Section 195(6) of Act provides that every person responsible for paying to a non-resident any sum, whether or not chargeable to tax under the provisions of the Act, shall furnish information relating to payment of such sum in the prescribed form and manner prior to remitting the payment to the non-resident. The Central Board of Direct Taxes (CBDT) has, vide Notification dated 16-12-2015, amended Rule 37BB of the Income-tax Rules, 1962, prescribing the manner of furnishing information and also revised the formats of Form nos. 15CA and 15CB in which the P a g e 13 46
information is to be furnished. The aforesaid amended dispensation and information furnishing requirement thereunder in different circumstances of the non-resident remittances were brought out vide circular no. CTD/Circ./Form 15CA/2015-16/11 dated 22-03-2016. In this regard, attention is also invited to circular numbers (i) CTD/Circ./NRC Remittances/2009-10/12 dated 18-08-2009; and (ii) CTD/Circ./Membership Fee-TDS/2013-14/14 dated 04-03-2014. The aforesaid circulars may please be referred for (i) information furnishing requirement under different scenarios of non-resident remittances based on the nature and taxability of sums payable to the non-resident; (ii) procedures to be followed for making remittances to non-residents; and (iii) situations in which certain types of remittances can be made after obtaining Certificates in Form 15CB from Chartered Accountants and those in which it is necessary to have an Order u/s. 195(2) or Certificate u/s. 195(3)/197, before making any remittance to a non-resident. In the case of contracts entered into on or after 01-06-2002, in case the tax liability is to be borne by ONGC, the income of the non-resident would have to be grossed up to such an amount as would, after deduction of tax at source, be equal to the net amount payable to the non-resident. In cases where income of the non-resident is considered taxable on gross basis as fees for technical services / royalty as per the order u/s. 195(2), grossing-up of income will need to be made in the following manner if tax is to be deducted @ 10.30% or @ 10.815% (if any other tax rate is applicable, the amount of grossed-up income should be arrived at using the same methodology and the applicable tax rate) - Particulars Income (Gross amount) on which tax is to be deducted (before grossing up) Applicable Tax Rate (inclusive of surcharge, if any, & education cess) Grossed up income (tax needs to be actually deducted from this grossed up income) TDS therefrom at applicable rate If tax is to be deducted @ 10.30% If tax is to be deducted @ 10.815% 1,000 1,000 10.30% 10.815% 1,000 X 100 / (100 10.30) 1,000 X 100 / (100 10.815) = 1114.828 = 1121.265 114.828 (10.30% of 1114.828) 121.265 (10.815% of 1121.265) In cases where income of the non-resident is considered taxable u/s. 44BB as per the order u/s. 195(2), grossing-up of income will need to be made in the following manner if tax is to be deducted @ 30.90% or @ 41.20% (if any other tax rate is applicable, the amount of grossed-up income should be arrived at using the same methodology and the applicable tax rate) - Particulars Amount payable to nonresident Income being 10% of Gross amount payable (before grossing up) as per sec. 44BB If tax is to be deducted @ 30.90% If tax is to be deducted @ 41.20% 10,000 10,000 1,000 1,000 P a g e 14 46
Applicable Tax Rate 30.90% 41.20% (inclusive of surcharge, if any, & education cess) Grossed up income * 1,000 X 100 / (100 30.90) 1,000 X 100 / (100 41.20) = 1447.179 = 1700.681 TDS therefrom at applicable 447.179 (30..90% of 700.681 (41.20% of 1700.681) rate * 1,447.179) * Where the amount is a fraction of a Rupee, the same may be rounded up to the next Rupee to avoid any demand for short deduction being raised. It may be noted that the above are only illustrations and grossing up would need to be done on the basis of the actual amount/income from which TDS needs to be effected and the actual rate of TDS (inclusive of surcharge, if any, & education cess) which apply in the actual situation. In light of the Explanations inserted in the definition of Royalty with retrospective effect from 01-06-1976, as brought out hereinbefore, care needs to be taken to ensure that all sums payable to non-residents for procurement, installation, customization, repair, maintenance, etc., of software or for acquiring any rights in, or right to use, any other intellectual property, are paid on the basis of an Order u/s. 195(2) or Certificate u/s. 195(3)/197 issued by the Income Tax Department and that TDS is regulated at the time of credit or payment of such sums, whichever is earlier, in accordance with the directions contained in such Order/Certificate. No such sums should be paid to non-residents on the basis of Chartered Accountants Certificates in Form 15CB. Attention in this regard is invited to this office Circular no. CTD/Circ./TDS-Software/2012-13/2 dated 09-04- 2012. The amount of income tax deducted at source needs to be increased by surcharge at the applicable rate in the specific situation as per the table below:- Type of Nonresident Upto Rs. 50 Lakh Sums payable for the financial year subject to TDS Exceeding Rs. 50 Lakh and upto Rs. 1 Crore Exceeding Rs. 1 Crore and upto Rs. 10 Crore Exceeding Rs. 10 Crore Company Nil Nil 2% of Income-tax 5% of Income-tax Non-company- Co-operative Society or Firms Nil Nil 12% of Income-tax Others Nil 10% of Income-tax 15% of Income-tax Since Education Cess @ 2% and Secondary and Higher Education Cess @ 1% (hereinafter collectively referred to as education cess and the rate thereof referred to as 3% ) is chargeable in all cases, the same would have to be computed on the amount of tax & surcharge, if any, irrespective of the quantum of income paid or likely to be paid to the non-resident. For example, if in the case of a non-resident company, tax is required to be deducted @ 10% as per Order u/s. 195(2) or Certificate u/s. 195(3)/197, a total of 10.506% (10% plus 2% surcharge thereon plus education cess @ 3% on tax and surcharge) would be required to be deducted if total amount paid or payable to the non-resident company during a financial year and subject to deduction of tax at source exceeds ` 1,00,00,000/= [Rupees One Crore] but does not exceed ` 10,00,00,000/= [Rupees Ten Crore]. If, however, in such case, total amount paid or payable to the non-resident company during a financial year and subject to deduction of tax at source does not exceed ` P a g e 15 46
1,00,00,000/= [Rupees One Crore], tax is required to be deducted @ 10.30% (10% plus 3% education cess thereon). In cases where the provisions of a Double Taxation Avoidance Agreement (DTAA) are applicable, care may be taken to ensure that the rate specified in the Order u/s. 195(2), inclusive of surcharge and education cess, does not exceed the maximum rate of tax chargeable as per the relevant DTAA and, if required, the matter may be followed up with the officer issuing the order u/s. 195(2) for necessary modification therein. CBDT has been empowered to specify, by notification in Official Gazette, classes of persons or cases where the person responsible for making payment to a non-resident would be required to mandatorily make an application to the Assessing Officer to determine, by general or specific order, the appropriate proportion of sums chargeable to tax and, upon such determination, tax would be deductible at source on that proportion. This means that, as and when CBDT specifies any classes of persons or cases where the person responsible for making payment to a nonresident would be required to mandatorily make an application to the Assessing Officer, it would not be possible to make any payments to/in such classes of persons or cases on the basis of Chartered Accountants Certificates in Form 15CB. However, so far, CBDT has not specified any such classes of persons or cases. A3. TIME OF TAX DEDUCTION: Tax needs to be deducted at source as follows- A. In resident cases Section Nature of payment Time of Deduction 194A 194C 194H Interest other than interest on securities (excluding interest on the compensation awarded by Motor Accidents Claims Tribunal) Payments to contractors or sub-contractors Commission or brokerage payments 194-I Rental Payments 194-IA Payments on transfer of certain immovable property other than rural agricultural land 194J Payments made by way of fees for technical/professional services or Royalty 194A Interest on the compensation awarded by Motor Accidents Claims Tribunal 194LA Payment of compensation or enhanced compensation on acquisition of certain immovable property At the time of crediting the sums to the account of payee or at the time of payment thereof in cash, or by issue of a cheque or draft, or by any other means, whichever is earlier (Please see Note below). At the time of payment B. In non-resident cases Section Nature of payment Time of Deduction 194E Payment to non-resident sportsmen or sports associations At the time of crediting the sums to the account of payee P a g e 16 46
194LC Payment of specified interest by Indian company to a non-resident 194LD Payments of interest on Rupee denominated bond of Indian company to FIIs and QFIs 195 Other payments to non-residents or at the time of payment thereof in cash, or by issue of a cheque or draft, or by any other means, whichever is earlier (Please see Note below). Note - Where any sum (other than compensation/consideration or enhanced compensation/consideration referred to in section 194LA, interest referred to in section 194LC, interest referred to in section 194LD, sums payable to non-resident sportsmen or sports associations referred to in section 194E, and any sums paid by way of interest on the compensation awarded by Motor Accidents Claims Tribunal as referred to in section 194A) is credited to any account, whether called Suspense Account or by any other name, in the books of account of the person liable to pay such sum, such crediting is deemed to be credit of such sum to the account of the payee for the purposes of TDS. Therefore, tax has to be deducted and deposited even on liability (except in the cases where tax is deductible only at the time of payment) provided in the books of account, whether such liability/provision is made at the time of closing of annual/quarterly accounts or at any time during the course of the year. In this regard, instructions have been issued from time to time by Chief Corporate Finance to all Finance Heads, latest being vide IOM no. CTD/TDS/2016-17 dated 09-02-2017. A4. TAX ON REIMBURSEMENTS AND ADVANCE PAYMENTS: Where a payment is made for something on cost to cost basis which the contractor was required to do as a part of its contractual obligation, the same cannot be said to be reimbursement. Reimbursement of expenditure refers to a situation where the contractor does something on contractee s behalf, not as a part of contractual obligations, for which it incurs expenditure, and such expenditure is later on met by the contractee on cost to cost basis. As per circulars issued by CBDT, where payment is made against a common bill for amount payable towards work, services, etc., and reimbursement of actual expenses, tax is required to be deducted on the gross amount paid/credited inclusive of reimbursements. Further, tax is required to be deducted even in the case of advance payments during or before the execution of a work contract. A5. TDS ON SERVICE TAX: CBDT has, vide circular no. 01/2014 dated 13-01-2014, clarified that in cases where, as per the terms of the relevant contract/agreement, the service tax component comprised in the amount payable to a resident payee is indicated separately, tax shall be deducted at source on the amount paid/payable, excluding such service tax component. Consequently, if the service tax component comprised in the amount payable to a resident payee is not indicated separately as per the terms of the relevant contract/agreement, tax shall need to be deducted on the amount paid/payable including such service tax component. Since the aforesaid CBDT circular applies only to resident payees, in the case of a non-resident payee, tax shall need to be deducted on the amount paid/payable, including the service tax component comprised therein, irrespective of whether or not the service tax component is indicated separately as per the terms of the relevant contract/agreement. However, if the relevant order u/s. 195(2)/certificate u/s. 195(3)/197 specifically provides for the non-inclusion of service tax in the amount paid/payable for TDS purposes, TDS may, in such cases, be regulated accordingly till the time that the order u/s. 195(2)/certificate u/s. 195(3)/197 remains in force. P a g e 17 46
As regards service tax to be deposited in the cases of non-resident payees under Reverse Charge Mechanism (RCM), the requirement or otherwise of TDS would depend as to upon whom the service tax law casts the responsibility of service tax. If the law casts the responsibility for payment of service tax under RCM on the service receiver, then, a view may be taken that service tax payable under RCM is not subject to TDS as the same is a statutory liability on the service receiver and does not form part of the contractual payment. Further, specific directions in this regard, if any, contained in the relevant order u/s. 195(2) or certificate u/s. 195(3)/197 also need to be complied with. A6. RATES AT WHICH TAX IS TO BE DEDUCTED AT SOURCE: The rates at which tax is to be deducted at source from various types of payments to residents are as follows:- Sl. No. SECTION NATURE OF PAYMENTS IF RECIPIENT IS A PERSON OTHER THAN A COMPANY IF RECIPIENT IS A COMPANY 1 194A Interest other than Interest on Securities. 10% 10% 2.1 194C Sums paid or payable to a contractor being an 1% NA Individual or Hindu Undivided Family. 2.2 194C Sums paid or payable to a contractor being a person other than those specifically covered under 2.1 above. 2% 2% 3 194H Sums paid or payable being Commission or Brokerage. 4.1 194-I Sums paid or payable being Rent for land, building, land appurtenant to a building, furniture, and/or fittings. 4.2 194-I Sums paid or payable being Rent for plant, machinery, and/or equipment. 5 194-IA Sums paid or payable being consideration for immovable property, not covered by section 194LA and other than rural agricultural land. 6.1 194J Sums paid or payable being Fees for Professional Services, Fees for Technical Services, or Royalty, to a person engaged ONLY in the business of operation of call centre (applicable w.e.f. 01-06-2017; existing rate of 10% continues till 31-05-2017) 6.2 194J Sums paid or payable being Fees for Professional Services, Fees for Technical Services, Royalty, Director s Remuneration (other than taxable as Salaries), (other than the payments covered under 6.1 above) 7 194LA Sums paid or payable being Compensation or Enhanced Compensation. 5% 5% 10% 10% 2% 2% 1% 1% 2% 2% 10% 10% 10% 10% P a g e 18 46