Exemption for Filing ROI to NR for income received u/s 115A

To avail of the exemption from filing an Income Tax Return (ITR) under section 115A(5) of the Income Tax Act, you must satisfy specific conditions regarding the nature of your income and the tax withheld at the source.

Conditions for Exemption

As per Section 115A(5), a non-resident (or foreign company) is not required to furnish a return of income if all of the following conditions are met:

1. Nature of Income: Your total income in India consists only of income by way of:

   • Dividends;

   • Interest (as referred to in Section 115A(1)(a));

   • Royalty; or

   • Fees for Technical Services (FTS).

2. Tax Deduction: The tax deductible at source (TDS) under Chapter XVII-B has been deducted from such income.

3. Rate of TDS: The tax must have been deducted at a rate not lower than the rate prescribed in Section 115A.

Addressing Your Query

Regarding your specific question on whether the TDS must include surcharge and cess or if one can argue the exemption applies even if deducted without them:

• Requirement of "Prescribed Rate": The law requires TDS to be deducted at rates "not lower than the rate provided under section 115A." Since Section 115A rates are typically "plus applicable surcharge and health and education cess," the standard expectation is that the tax withheld should reflect the effective rate (base rate + surcharge + cess) applicable to the specific type of income and the status of the assessee.

• The "Lower Rate" Argument: If TDS is deducted at a rate lower than what is prescribed (e.g., ignoring surcharge/cess, or applying a lower DTAA rate without fulfilling the requirement to file an ITR), you may technically fail to meet the conditions for the exemption.

• DTAA Nuance: If you claim a more beneficial rate under a Double Taxation Avoidance Agreement (DTAA), many interpretations and professional stances suggest that to avail of these treaty benefits (which are often lower than the Section 115A base rates), the non-resident is generally expected to file an income tax return in India. The exemption under 115A(5) is typically meant for those who accept the tax rates under the Income Tax Act (without treaty benefits) and have had full tax withheld at those statutory rates.

Summary:

To safely claim the exemption from filing an ITR, the tax should ideally be deducted at the effective rate prescribed under Section 115A (which includes surcharge and cess). If TDS is deducted at a rate lower than this, or if you apply DTAA rates, you likely do not qualify for the exemption under 115A(5) and would be required to file an ITR to ensure compliance and potentially claim any refunds or treaty benefits.