The tough times are over for non-resident entities as the Central Board of Direct Taxes (CBDT) has eased taxation norms for NRIs. The NRIs can take a sigh of relief now as CBDT has allowed them to avail lower withholding tax under Section 206AA of the Income-Tax Act where it will not be mandatory to provide Permanent Account Number (PAN). Big relief NRIs tax norm eased can now avail lower TDS without PAN.
CBDT has now notified rules clearly stating that provisions of section 206AA shall not apply for payments in the nature of interest, fees for technical services, royalty and payments on a transfer of capital asset subject to the condition of furnishing prescribed documents and details to the payer by a payee.
A new Rule, 37BC, has been inserted by CBDT to give relaxation to non-residents such that they will not be required to furnish PAN number in India in order to claim TDS benefits. The list of Non-residents includes foreign body corporates, foreign partnerships 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 the 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, as per Section 206AA of Income Tax Act PAN was mandatory for every non-resident in order to obtain a tax benefit in the absence of which the payer was liable to withhold taxes at the rate of 20% or that as per tax treaty or the rate of tax as per the Act (whichever is higher) while making payment to a non-resident.
Also, prior to the current change, PAN was a mandatory requirement to obtain TDS certificates which made claiming a tax credit in their country of residence difficult. Hence, apart from suffering a higher withholding, the non-residents used to face challenges and difficulties in claiming tax benefits as well. After recognizing these difficulties CBDT eventually eased the tax norm for NRIs.