Payment to Non Residents - Issues, Compliances and other related Matters

In the growing era of Globalisation and the political situation where the government has opened up the gates for the Foreign Players to Invest in India like FDI's , (Foreign Direct Investments), the role of a Chartered Accountant has much increased as there are many compliances to be made and many Certifications to be issued by him, here is a small discussion regarding the payment to non residents and its compliances:

As per Sec 195 Of Income Tax Act, 1961 (1)  Any person responsible for paying to a non- resident, not being a company, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head" Salaries" 3[ ]) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income- tax thereon at the rates in force: 4 5[ Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode.] Explanation.- For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called" Interest Payable Account" or" Suspense Account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.]

The following points can be arrived from the above:

1. The Section applies when there is a payment to Non-residents,i.e. payee is a Non resident.

2.The section applies both to resident and Non-resident payers.

3.The tax to be deducted at the time of payment i.e. at cash or cheque or draft.

Rate of Income tax:

The rate of Income tax is the actual tax liability  which the non-resident has to pay the tax if taxable In India. There is a benefit given under this that if the rate in DTAA is less than the Income tax, then the rate beneficial to the Non -resident Payee can be taken and deducted.

Procedure To be Complied:

1. The remitter making the payment shall obtain a certificate from the Chartered Accountant in Form 15CB.

2. The remitter will then access the website to electronically upload the remittance details to the Department in Form 15CA (undertaking). The information to be furnished in Form 15CA is to be filled using the information contained in Form 15CB (certificate). 

3. The duly signed Form 15CA (undertaking) and Form 15CB (certificate), will be submitted in duplicate to the Reserve Bank of India / authorized dealer. The Reserve Bank of India / authorized dealer will in turn forward a copy the certificate and undertaking to the Assessing Officer concerned.

4. A remitter who has obtained a certificate from the Assessing Officer regarding the rate at or amount on which the tax is to be deducted is not required to obtain a certificate from the Accountant in Form 15CB.  However, he is required to furnish information in  Form 15CA (undertaking) and submit it along with a copy of the certificate from the  Assessing Officer as per the procedure mentioned from Sl.No.(1) to (3) above.

5. The remitter submits the above documents to the Authorised dealer or the Banker for the remittance of the money to the Non-resident.

6. The Copy of the Undertaking(15CA) and the Accountant report(15CB) shall be forwarded to the Assessing  Officer.

This is my small trial in sharing my known information with my colleagues and covers only small part of the entire ocean of the Sec 195.