All about Non-resident taxation

Non-resident taxation

Any payment made to non-resident or to a foreign company whereby tax has to be deducted under Section 195 of Income tax Act ('IT ACT'). There are lot of complexities in dealing with this aspect which will be discussed in this missive.

Key points

• Payment while making to non-resident has to be deducted as under rate in force or double taxation avoidance agreement ("DTAA") which is ever benefical. The term DTAA means whereby Central government has entered into agreement with another country that gives taxpayer a concessional rate of tax. There are lot of articles in DTAA. DTAA exist with respect to all heads of income and other income-related aspects. There are few jurisdiction where no DTAA exist.
• If payment is made as per Income tax act rates of tax has to be deducted along with surcharge and cess. The reason is to ensure faster collection of tax and possibility that Non-resident may evade tax.
• If payment is made at the rate which is ever beneficial then analysis of provisions has to be made.
• The transaction has to be analysed taking into account substance over legal form it can be possible where by transaction can be royality or fee for technical services based on judicial precedent.
• The payment can be either on gross basis or net basis. In depth analysis has to be made of the provision.
• Payment while making to a non-resident a certificate needs to be obtained in form 15CB from an accountant. The term accountant means chartered accountant as defined under CA act 1949.(Chartered Accountants Act 1949). Rule 37BB need to be analysed
• Today with the world being digital and more e-commerce transactions taking place equilisation levy had been introduced under section 165 and 165 A of Finance Act 2016. However there is a possibility that even Equilisation levy is deducted still can be taken as fee for technical services where by tax has to be deducted by way of TDS. Example is payment for advertisement to LinkedIn (located in Singapore having no Permanent establishment in India) apart from equalisation levy tax has to be deducted considering DTAA provision whereby TDS is borne by payer in India. this is the nuance of the transaction.
• While making payment to a non-resident form 10F (no PE certificate) and other provisions have to be analysed.
• A new provision got inserted where by Rule 29BA read with form 15E got introduced. This form is applicable whereby lower deduction is done while making payment to a non-resident. Form 15E is applied in year beginning and remains for a period for time in force as determined by the assessing officer. This requires professional judgment as there is a possibility that a judgment may overrule the transaction.
• Non-resident need to apply Permanent account number (PAN) and tax residency certificate to avail DTAA benefit.

Circumstances where by non-resident need not file the return

• In case of non-resident sportsman (not being match referee umpire) being a non-citizen of India where by derives income from playing sports , writing articles , participating advertisement and tax deducted at source then no need file return of income.
• In case of non-resident (person of Indian origin) having investment income from specified securities and tax deducted at source and complies with provision of the act rule then no need to file return of income.

Conclusion

• A Chartered accountancy firm dealing with transaction advisory and more on international transaction can tackle the task of advising clients and give best possible feasible solution.
• This requires analysis from advisory till litigation for a transaction.
• When it comes to non-resident taxation certain issues can be litigate or unsettled which deserves attention while giving advisory.
• Highly emerging area for chartered accountants, tax practitioners, lawyers and academicans.