Remark in Form 27Q

When filing Form 27Q for payments made to a non-resident or foreign company where you have applied a lower TDS rate based on a Double Taxation Avoidance Agreement (DTAA), you should generally not use the remark code "C".

Understanding the "Remarks" Column

The "Remarks" column in Form 27Q is primarily intended to explain why tax was deducted at a rate different from the normal rate (e.g., lower, nil, or higher).

• Code "C" is specifically designated for cases where TDS is deducted at a higher rate due to the non-availability of a valid PAN.

• If your system is triggering a warning for "higher rate" when using "C," it is because the software automatically applies the penalty rate (typically 20%) associated with the absence of a PAN.

What to select for DTAA Cases

When you apply a DTAA rate, the deduction is often considered "lower" than the domestic rate under the Income-tax Act. However, you should refer to the specific codes provided in your Return Preparation Utility (RPU).

1. Check for specific DTAA codes: In many versions of the Form 27Q annexure, there is a specific field or instruction for DTAA. As per the official Protean (formerly NSDL) guidelines, if the rate of TDS is as per the Income Tax Act, you mention "A," and if the rate of TDS is as per the DTAA, you should mention "B" in the relevant column (often labeled as "Rate of TDS is as per IT Act or DTAA").

2. Verify the Column: Ensure you are entering "B" in the column that asks whether the rate is as per the Income Tax Act or DTAA, rather than the "Remarks for lower/no deduction" column.

3. Documentation: To safely apply the DTAA rate without triggering a "short deduction" default, ensure you have the following on record:

   • Tax Residency Certificate (TRC) from the foreign company.

   • Form 10F (or the required self-declaration as per local rules).

   • Any other documents required by your specific DTAA (such as an Indemnity Bond or No-PE declaration).

Summary

• Do not use code "C" for DTAA applications, as it forces the system to calculate TDS at a penal higher rate.

• Use the column designed for the rate type to indicate the application of DTAA (often represented by the code "B").

• Ensure you maintain all necessary treaty documentation (TRC, Form 10F) to justify the lower rate to the Income Tax Department.