Permanent Account Number (PAN), which has become an integral part of financial transactions for Indian taxpayers, is seen as a cumbersome registration requirement by non-residents doing business in India. Though Income Tax (IT) laws in India have exempted non-residents from obtaining PAN under certain conditions, a recent notification by the Central Board of Indirect Taxes (CBDT) may change this for some non-residents.
The Finance Act, 2009 had mandated the deductor to furnish PAN to the deductor regardless of residential status, failing which the deductor would have to deduct tax at a higher rate of 20%. The move caused compliance difficulties, particularly with respect to payments to non-residents which were scarce and governed by relevant tax treaties. Consequently, the provision was amended to provide exemption from mandatorily furnishing of PAN, subject to furnishing of prescribed details such as interest, royalty, fees for technical services (FTS), dividend, or transfer of capital assets. . Name, e-mail ID, contact number, address, Tax Residency Certificate (TRC) and Tax Information Number (TIN) in the country of residence.
Non-residents are exempted from filing return of income in India where their total income includes only interest, royalty, FTS or dividend income from India and withholding of appropriate taxes on such income in accordance with the provisions of the Indian income tax laws Is. They are not required to file returns in India in cases where beneficial provisions or tax rates under tax treaties are availed.
The IT rules mandate quoting of PAN in notified transactions, such as opening of a bank or demat account, acquisition of debentures or bonds, sale or purchase of securities, unlisted shares, mutual fund units, etc., beyond the prescribed monetary limit. Non-residents including foreign companies also come under the ambit of these transactions. Accordingly, resident taxpayers should disclose the PAN of the parties involved in such transactions in the annual reporting of specified financial transactions (Form 61A), re-emphasizing the requirement of obtaining PAN by non-residents who are parties to such transactions. Huh.
In cases where PAN is not required to be quoted, non-resident Indians can transact with parties without withholding higher (20%) tax rate if the above details (including TIN) and documents (valid tax residence certificate) or TRC) are provided to the resident Indian payer. TRC is not just one of the alternatives to PAN but is the primary key to access beneficial provisions and tax rates available under treaties.
Where the TRC does not reflect the specified information, it is to be supplemented by a physically attested self-declaration in Form 10F which provides the deductor with information such as status, nationality, TIN, etc. CBDT has mandated Form 10F to be submitted and verified electronically.
All statutory income tax forms and returns are submitted electronically on the IT e-filing portal. The PAN of the taxpayer is required to create the profile/account of the taxpayer on the e-filing portal. This may mean that non-residents will have to register on the website and obtain Form 10F, thereby inadvertently obtaining PAN in India. Overall, it has been observed that non-residents availing the benefit of tax treaties fail to file return of income in India. The recent prescription for electronic verification of Form 10F may be towards ensuring filing of income tax return (especially in cases other than exempted cases) and thus obtaining PAN by non-residents to avail tax treaty benefits. Doing.
It is worth noting that even where Form 10F is filed by a non-resident for obtaining PAN, there may still exist a possibility that due to other technical reasons, the treaty would be denied benefits. Refusal is made, such as not meeting the beneficial ownership provisions related articles of income of the bilateral tax treaty, whereby the income is taxed under the domestic tax provisions.
Therefore, a better approach might be to put the onus on a resident payer to verify and upload Form 10F electronically, as the onus of withholding the appropriate taxes lies with the payer. Linking this to Form 15CA/15CB, a natural consequence of Form 10F and then making it a required disclosure in the TDS return (Form 27Q) can save the non-resident from obtaining PAN unnecessarily. Hopefully, this development is just a digital shift of compliance for non-residents and doesn’t indicate a rough patch ahead.
Sandeep Jhunjhunwala is M&A Tax Partner at Nangia Andersen LLP. Abhishek Mehta and Marilyn Malekes also contributed to this article.
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