Icai 17.02.2017 Taxation of foreign remmitances

Institute of Chartered Accountants of India

Taxation of Foreign Remittances

17.02.2017

Presented by

CA.Shweta Ajmera

[email protected]

"It was only for the good of his subjects that he collected taxes from them, just as the Sun draws moisture from the Earth to give it back a thousand fold" – --Kalidas in Raghuvansh eulogizing KING DALIP.

17/02/2017 CA.Shweta Ajmera 2

Principles of Taxation

Residence based

Taxation


Introduction

I have received an invoice from a

foreign company for payment

Finance Manager ABC Limited

What should I do?

4 17/02/2017 CA.Shweta Ajmera

Following issues to be considered before making the remittance:

• Whether it is permissible under FEMA?

• Is it taxable in India under ITA or DTAA?

• If taxable– rate of TDS?

• Which rate to apply ITA or DTAA?

• Also the MFN clause of DTAA is important

• If not taxable, proper reasoning why it is not taxable?

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Provisions mentioned under Income Tax Act 1961

Section number

Details

Sec. 192 WHT in case of Salary Payment

Sec. 194E Payments to Non-Resident Sportsmen or Sports Association

Sec. 196 to 196D

Specific Sections

Sec. 195 In other than above mentioned cases


PRESENTATION DIVIDED INTO FOUR PARTS

Part – A : Overview Of Section 195

Part – B : Scope Of Income Of A Non-resident

Part – C: Certain Cross Border Payments Withholding Tax Issues

Part – D: Remittance Certificate By CA & submission by assessee (Form 15CB/15CA)


Why discuss Section 195?

• Stringent consequences for all parties to the transaction Deductor Deductee CA! • Scope expanded in recent times Retrospectively Extraterritorial Operation • Tax Department’s eye on international payments • Controversy for Remittance Procedures – Is it now clear?


UNIQUE FEATURES of section 195 as compared to other TDS Provisions

Unlike personal payments exempted in section 194C etc; no exclusion for the same in section 195 (all payments covered excluding salaries provided chargeability there) eg payment to foreign architect for residential house construction etc.

Unlike threshold criteria specified in section 194C etc, no basic limit in section 195 even Re 1 payment is covered. 44AB criteria?

Unlike other provisions in Chapter XVII (TDS provisions), section 195 uses a special phrase “chargeable to tax under the Act”

All payers covered irrespective of legal character HUF; Indl etc

Multi-dimensional as involves understanding of DTAA/Treaty


Section Provisions

195(1) Scope and conditions of applicability

195(2) Application by the “payer” to the AO for lower/nil WH

195(3) Application by the “payee” to the AO for NIL WH

195(4) Validity of certificate issued by the AO of lower/NIL WH

195(5) Powers of CBDT to issue Notifications/Rules

195(6) Furnish the information relating to the payment of any sum

195(7) CBDT to specify class of persons or cases where application to AO is compulsory

195A Grossing up of tax

AN OVERVIEW OF TDS U/S. 195


Overview of section 195

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Any person Non resident

Make any payments or credit to..

Withhold tax at the rates in force

Section 195 of the Income Tax Act, 1961

The person making such aforesaid payment (whether or not chargeable to tax) has to furnish information as prescribed in rule 37BB.

CA.Shweta Ajmera

SECTION 195(1)

Any person responsible for paying to a non-resident, not being a company or to a foreign company, any interest (not being interest refered to in section 194LB or sec 194 LC or sec 194LD) or any other sum chargeable under the provisions of the Act (not being the income chargeable under the head salaries) 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 issue of cheque or draft or by any other mode deduct income tax thereon at the rates in force.


“Any person responsible for paying to Non Resident”

Section 204 (iib) – (new clause from 1st April 2017)

-Payer himself

-or if payer is a company, the company itself including the principal officer thereof


194LB, 194LC & 194LD

• 194LB: Income by way of interest from infrastructure debt fund.

• 194LC: Concessional tax rate on interest in case of specifiest d Borrowings- 5% on the borrowings till 1st July 2017, now extended to 1st July 2020

• 194LD:Concessional tax rate on interest to FII’s & QFI’s- 5% on the borrowings till 1st July 2017, now extended to 1st July 2020


SECTION 195(1)

• Provided- In case of Interest Payable by government or a public sector Bank within the meaning of sec 10(23D) or a public FI within the meaning of that clause , WHT only on payment basis

• Provided no deduction shall be made in respect of any dividends referred to in section 115 O

• Explanation 1: “Interest payable account or Suspense Account


Wide Scope of the section Conditions for application of Section 195

a) “any person” - Includes a person having no

taxable income. b) “a non-resident” - Includes NRIs

- does not include R but NOR c) “sum chargeable to tax (other than Salaries and

exempt dividend u/s 115O)”

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• Charge of Income Tax – Section 4

• Scope of Total Income – Section 5 – Accruing or deemed to accrue

– Received or deemed to receive

• Residential Status – Section 6

• Deemed Income: section 7 & section 9

Determination of ‘Any sums chargeable to tax’…


• Section 4 (Charge of Income Tax)- Income Tax shall be charged at the rates for that assessment year in accordance with the provisions of the Income Tax act 1961 in respect of total Income of every person.

• Section 2(31) –Person includes

An individual

HUF

A Company

A firm

AOP or BOI whether incorporated or not.

Local Authority

Every artificial Juridical Person, not falling above.

Scheme of Taxation for Non-Residents under the Income Tax Act,1961

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Section 6 of the Income Tax Act 1961 states about the residential status of a person. Non Residents are separately categorised in it.

According to section 5(2) of the Act, which states, the total income of any previous year of a person who is Non-resident includes all the income from whatever source derived which is received or is deemed to be received in India or accrues or arises or deemed to accrue or arise to him in India during the previous year.

Section 7 and 9 of the act explains the term “Income deemed to be received” and “Income deemed to accrue or arise in India”.

Why Compliances???-Compliances are under Deemed Concept…..


Section 5(2) – The total income of any previous year of a person who is a non resident includes all income which:

Is received or deemed to be received in India or

Accrues or arises or is deemed to accrue or arise to him in India.

section 2(30)- A non-resident means a person who is not a resident and does not includes the person who is resident but not ordinarily resident.

Section 5 of Income Tax Act 1961


Resident & Ordinarily Resident

Resident but not ordinarily resident

Non Resident

Income accrued or arised in India/received in India

Taxable Taxable

Taxable

Income accrued outside India but deemed to accrue in India/First receipt In India

Taxable

Taxable

Taxable

Any other income accrued outside India & received outside India

Taxable

Not Taxable*

Not Taxable

Scope of Income

* Exception: Income received by the individual is taxable only if the business set up is in India


• An individual will be treated as a Resident in India in any previous year if he/she is in India for:

At least 182 days in that year, or

At least 365 days during 4 years preceding that year AND at least 60 days in that year.

(if the individual leaves India for the purpose of employment or as a member of the crew of an Indian Ship, then the words ‘60 days’ will be substituted with ‘182 days’)

An individual who does not satisfy both the conditions as

mentioned above will be treated as “non-resident” in that previous year.

Section 6-Residential Status


A person is said to be “not ordinarily resident” in India if:

He has been a non- resident for 9 out of 10 previous year preceding that year, or

during seven previous years, preceding that year, has been in India for 729 days or less

( in case of an HUF the above criteria will be applied to the ‘karta’of HUF to know the status of the HUF)

Any HUF, firm or company is said to be resident in India if during the previous year the control and management of its affairs is situated wholly in India.

Section 6- Residential Status


• Section 9(1)(i)

All income directly or indirectly through or from any business connection, or property, or asset or source of Income or through transfer of capital asset situated in India.

A business connection involves:

• A relation between a business carried on by non-resident, some activity in India, which contributes directly or indirectly to the earning of the profits or gains.

• It predicates an element of continuity between the business of the non-resident and the activity in India.

Taxable only if:

• relates to a source of income or asset in India: or

• if “business connection”under IT Act/”PE”under the treaty exists.

Section 9 of the Income Tax Act 1961


Principles need to satisfy for BC

Landmark judgement of the AP High Court in GVK Industries Ltd v/s ITO laid down following principles:

• Existence of close, real & intimate relationship

• Commonness of Interest

• Continuity of activity or operation.

• A stray or isolated transaction is not enough to establish a BC (Anglo French Textile Co. Ltd v/s CIT)


BC – person acting on behalf of NR

• Has & habitually exercises in India,an authority to conclude contracts on behalf of NR, unless his activities are limited to purchase of goods or merchandise for the non resident or

• Has no such activity, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of NR.

• Habitually secures orders in India, mainly or wholly for NR or for that NR and other NR controlling, controlled by, or subject to the same common control, as that NR

• If Agent having Independent status?


Income not to be treated as arising from business connection

(a)Income reasonably attributable to the operations carried out in India will be deemed to accrue or arise in India in case all the operations from business are not carried out in India;

If the income from Indian operations cannot be definitely ascertained, than, the same may be computed on apportionment:

i. At such percentage of Indian turnover as determined by the AO.

ii. Taxable Profits=Total profits*receipts accruing /arising in India/Total receipts of business.

iii. In any other manner as considered suitable by AO.


Income not to be treated as arising from business connection

(b) Income of NR in respect of operations confined to purchase of goods in India for purpose of exports.

(c) NR engaged in business of running news agency/publishing newspaper,magazines,income arising through or from activities confined to collection of news and views in India for transmission out of India shall not be deemed to accrue or arise in India

(d) Income arising through or from operation confined to shooting of cinematographic films in India to NR being:

1. An individual who is not citizen

2. A firm not having partner who is either an Indian citizen or Resident in India

3. A Company not having any shareholder who is either Indian Citizen or Resident of India


• Revenue lost the 11,000 crores battle to Vodafone which led to Retrospective amendment

Explanation 4

• “through”to retrospectively mean “by means of”, in consequence of and “by reason of”

Explanation 5

• Capital asset to be situated in India, if share or interest derives directly or indirectly its value substantially from assets located in India

• Explanation 5A– retrospectively AY 2012-13

It says Expln. 5 does not apply to any asset or capital asset, being investment held by non-resident directly or indirectly in FPI’s(FII’s)

Section 9(1)(i)


Section 9(1)(i)

• Explanation 6- the share or interest , referred to in Explanation 5,shall be deemed to derive its value substantially from assets in India, if on the specified date, the value of such assets:

(i) Exceeds Rs.10 crores &

(ii) Represents atleast 50% of the value of all the assets owned by the company or entity as the case may be.

Value of Asset= Fair Market value(without reduction of liabilities)

Specified date-31st March or as prescribed


Section 9(1)(i)

• Explanation 7: No income shall be deemed to accrue or arise in India to a NR from transfer outside India, of any share of or interest in any entity registered or incorporated outside India:

Foreign company or entity directly or indirectly owns the asset situated in India and the transferor at any time in 12months preceding date of transfer does not hold:

a) The right of management or control in relation to such company or entity or

b) The voting power or share capital or interest exceeding 5% of the total voting power or total share capital or total interest, as the case may be of such company


• Section 9(1)(ii): (Eli Lilly Ltd)

Income from salaries, if earned in India

The term ‘earned in India’ obviates the difficult question which arises regarding the place of accrual of salaries.

The main effect of the clause is to charge non-residents on salary or pension earned in India even where it actually accrues abroad & is received abroad.

Section 9- Salaries


Payer Deemed to accrue or arise in India

Government In all cases without exception

Resident In all cases, except where payable for the purposes of/ in business or profession carried on by such person outside India, or for the purposes of making or earning any income from any source outside India

Non- Resident Only in cases where it is payable for the purposes of a business or profession carried on by such person in India, or for the purposes of making or earning any Income from any source in India

Section 9- Interest, Royalty & FTS


• The transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trademark or similar property.

• The imparting of any information concerning the working of the above mentioned assets or the intellectual properties

• The use of any of the above mentioned assets or intellectual properties.

• The imparting of any information concerning about the above mentioned assets or intellectual properties

• the transfer of all or any rights (including the granting of a license) in respect of any copyright, literary, artistic or scientific work…

Royalty


Explanation 4

Transfer of rights retrospectively includes transfer of right for use/ right to use a computer software irrespective of the medium of transfer. What is meant by Right to use Computer Software

Explanation 5

Royalty includes consideration whether possession is with payer/ such right is used by the payer/ location of such right is in India.

Explanation 6

Process shall retrospectively include transmission by satellite (including up-linking, amplification, conversion for down- linking of any signal), cable, optic fibre or other similar technology

Not included– those income covered under Capital Gains

Section 9(1)(vi)-


Software payments?

• As held in Infrasoft’s case:

What is transferred is nither the copyright in the software nor the use of the copyright in the software, but what is transferred is right to use the copyrighted material or article which is clearly distinct from the rights in the copyright.

Limited right to use the copyrighted material and does not give rise to royalty income

Web server? As held in Right Floriata case


Any consideration (including lump-sum) for rendering of any

• Managerial

• Technical or

• Consultancy Services

• Excludes

Construction, assembly, mining or any other like project and income chargeable under the head salaries

DTAA- “Make available” FIS

Fees for Technical Services


• After the decision of Ishikawajima Harima(SC)

• Explanation was retrospectively inserted by Finance Act, 2007

• Income of a non-resident shall be deemed to accrue or arise in India whether or not

• Non resident has a place of business or business connection in India.

• Non-resident has rendered services in India

However, Karnataka High Court in Jindal Thermal Power has upheld that Ishikawajima Harima is still a good law despite retrospective amendment

Section 9 (v)(vi)(vii)


Nature of Income Taxability

Business/ Profession se. 9(1)(i) Taxable if direct or indirect Business Connection in India or property or asset or source in India or transfer of a capital asset situated in India

Capital Gains Sec. 9(1)(i) Taxable if situs of shares/ Property in India or derives its value substantially from assets in India

Interest income Sec. 9(1)(v) Taxable if sourced in India

Royalties sec 9(1)(vi) Taxable if sourced in India

FTS sec 9(1)(vii) Taxable if sourced in India

Section 9- Synopsis


• Chargeability to tax governed by provisions of Act/DTAA

Nature of Income Act* Treaty

Business/Profession S. 9(1)(i) A.5, A.7 & A.14

Salary Income S. 9(1)(ii) A.15

Dividend Income S. 9(1)(iv), S.115A A.10

Interest Income S. 9(1)(v), S.115A A.11

Royalties S. 9(1)(vi), S.115A A.12

FTS S. 9(1)(vii), S.115A A.12

Capital Gains S. 9(1)(i), S.45 A.13

* Apart from S.5, wherever applicable

ACT/DTAA, Whichever is beneficial prevails



Q. Any sum chargeable to tax means:?????? Q. Whether tax is to be deducted on the gross amount or only on

the income portion of the amount paid to NR? Rulings: Transmission corporation of AP Ltd. (105taxman 742)(SC) -Tax liable to be deducted by payer on the gross amount else go for

section 195(2) Samsung Electronics Co. Ltd. (185 Taxmann 313)(Karnataka HC) - HC held that obligation to deduct tax arises the moment there is

remittance to the NR abroad. Until certificate obtained u/s 195(2) , he cannot interpret that income is not taxable in India.

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– GE India Technology Centre (P) Ltd (234 CTR 153) (SC)

SC held that sec 195(2) is based on “Principle of Proportionality” & gets attracted where the payment is composite payment.

The moment there is a remittance out of India, it does not trigger Sec 195. The payer is bound to deduct tax only if the sum is chargeable to tax (i.e. there is an element of income) in India read with sec 4, 5 and 9.

Sec 195 not only covers amounts which represents pure income payments but also covers composite payments which has an element of income embedded in them

However, obligation to deduct TDS on such composite payments would be limited to the appropriate proportion of income forming part of the gross sum.

SC- Karnataka HC losen its sight on plain language of sec 195(1)



• Based on GE India Ruling:

• CBDT issued Instruction no. 2/2014 (F.No. 500/33/2013-FTD-I) dated 26th February 2014, instructing AO that if no application made u/s 195(2) & assessee failed to deduct TDS u/s 195 of the act, default amount u/s 201 is on sum chargeable to tax & not on the whole amount.


• Tax withholding from payment in kind – Kanchanganga Sea Foods Ltd. (325 ITR 540) (SC)

• Payments by one non-resident to another non-resident inside /

outside India ?

• Sec 195 applies w.r.t. Payments made to a foreign company?

• Payment of sum exempt under sec 10 should not be subject to TDS (Hyderabad Industries Ltd. 188 ITR 749 Kar)

• Indian Branch of a foreign company rendering amount to foreign company?

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• S.195(2) - Application by the Payer to the AO for determining appropriate portion of sum chargeable

• Appeal against order under S. 195(2) - S. 248

– Amendment by Finance Act 2007

S. 248 allows the payer to file an appeal before the CIT(A) provided the tax is deposited by the payer in the exchequer of the Government

If tax is borne by the payee, a payer cannot file an appeal

under section 248 of the Act

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• Whether an application can be made under S. 195(2) for NIL Withholding order?

– Held yes in case of Mangalore Refinery and Petrochemicals Ltd (113 ITD 85) (Mum)

– However, a contrary view has been taken in the following cases:

Czechoslovak Ocean (81 ITR 162) (Cal)

Graphite Vicarb India Ltd (28 TTJ 425) (Cal)

– Practical Purposes, Application u/s 195(2) is adopted for both nil as well as lower withholding tax rate order

– No time limit for passing order u/s 195(2):

– Blackwood Hodge (India) Pvt. Ltd. 81 ITR 807 (Cal)

– Central Associated Pigment Ltd. 80 ITR 631 (Cal)

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•Whether applying for WHT certificate compulsory? Principles laid down in GE India Technology Centre P Ltd(SC) – Application u/s 195(2) presupposes that the payer is in no

doubt that tax is payable in respect of some part but is not sure as to what should be the amount on which tax is so deductible.

– Where a person is fairly certain about the portion of sum chargeable to tax, then he can make his own determination as to whether TDS is deductible and if so what should be the amount.

– In case of composite payments, where a payer has a doubt regarding determining the appropriate portion of sum chargeable under the act, he must make an application u/s 195

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• Section 195(3) - Application by NR payee for NIL tax withholding

(Rule 29B)

• Once such certificate granted , every person responsible for paying income shall make payment without TDS as long as the certificate is in force

• Conditions to be followed

• A certificate granted u/s 195(3) shall remain in force:

– for FY mentioned therein, or – until cancelled by the AO before expiry of FY

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• Conditions to be satisfied for refund : contract is cancelled and no remittance is made to the NR the remittance is duly made to the NR, but the contract is cancelled and the

remitted amount has been returned to the payee contract is cancelled after partial execution and no remittance is made to the

NR for the non-executed part; contract is cancelled after partial execution and remittance related to non-

executed part made to the NR has been returned to the payee or no remittance is made but tax was deducted and deposited when the amount was credited to the account of the NR;

remitted amount gets exempted from tax either by amendment in law or by notification

an order is passed under Sec 154 or 248 or 264 reducing the TDS liability of the payee;

deduction of tax twice by mistake from the same income; payment of tax on account of grossing up which was not required payment of tax at a higher rate under the domestic law while a lower rate is

prescribed in DTAA.

Refund of tax Withheld u/s 195


Rate of TDS

• Sec 195(1)- Rates in Force

• Sec 2(37A)(iii)- for the purpose of TDS u/s 195, rates in force mean the rate specified in Part II of First Schedule to the Finance Act of the relevant year or the rates specified under DTAA, as may be beneficial u/s 90(2) of the Act.


Rate of tax Particulars Foreign

companies Effective rate including surcharge

Others Effective rate including surcharge

Basic tax rate 40% 30%

Surcharge if total income does not exceed 1 crore

NIL 41.2% NIL 30.90%

Surcharge if the total income is more than Rs. 1 crore but less than Rs.10 crore

2% 42.02% 12% 34.61%

Surcharge if the total income is more than Rs.10 crore

5% 43.26% 12% 34.61%


TRC-Tax Residency Certificate

• Sec 90(4)- Every NR desirous to take DTAA benefit • Sec 90(5) read with rule 21AB , requires payee to furnish info

in form 10F:

1. Status of the assessee 2. PAN of the assessee if alloted 3. Nationality or country or specified territory of incorporation

or registration 4. Assessee's Tax Identification Number in the country of

Residence 5. Period for which the residential status as mentioned in TRC

is applicable. 6. Address of assessee in country of Residence


Section 206AA

At the rate specified in the relevant provisions of the act

Or

At the rates in force

Or

At the rate of 20%


206AA- The Finance Act 2016

Only on Payments include Interest, FTS, Royalty and Capital Gains

For other cases: PAN is mandatory

Rule 37BC vide CBDT Notification No.53/2016 dated 24th June 2016

- Basic information i.e name , email id, contact number, and address in the country of tax residence.

- TRC if the law of country of tax residence provides for issuance of such certificate.

- Tax Identification Number(where no such number is available, other unique number by which such payee is identified in the country of tax residence)


Surcharge & Education cess & Grossing Up

• On DTAA rates?

• On Income tax Act Rates?

Section 195A Grossing Up of tax

“Net of Tax” arrangement where payer bears the tax liablity. Tax being calculated on the gross amount


Examples --section 195A

• Q1. X Co. (a foreign company holding a PAN) has agreed to provide certain technical services to Y Co. (an Indian Company) for a fee of Rs.100. Under the agreement, tax has to be borne by Y Co. The tax rate as per Part II of the First Schedule is 10.815%(including surcharge & cess) and tax rate under the DTAA is 10%.Calculate TDS?


Net Payment 100

Rate in force as per 2(37A)- 10%(i.e. the beneficial rate between 10.815% and 10%)

10%

Increased income u/s 195A 111.11 (100*100/90)

Grossed up tax 11.11(10*100/90)

TDS u/s 195 Rs.11.11 (10% of Rs.111.11)


Q2. X Co. doesnot have TAN and yet to obtain TRC?

Net Payment 100

Rate in force as per 2(37A)- 10%(i.e. the beneficial rate between 10.815% and 10%)

10%

Increased income u/s 195A 111.11 (100*100/90)

Grossed up tax 11.11(10*100/90)

TDS u/s 195 r.w.s 206AA Rs.22.22 (20% of Rs.111.11)


Relevant Foreign Exchange Rates

Rule 26 of the Rules:

State Bank of India adopted TT buying rate of such currency on the date on which tax is required to be deducted u/s 195 of the Act

Exchange rate fluctuation between credit and payment?

Sandvik Asia Ltd(49 SOT 554)(ITAT Pune)


Questions?

• Payments by a non resident to another non-resident outside India?

The Supreme Court in (2012) Vodafone International Holdings B.V. (341 ITR 1)(SC)

• Payments covered under section 195, but not involving an AD (e.g. payments by credit card, barter payments , book entries, payment to indian branch of a foreign company, payments within India etc)? BSR dummy code

• Transfer of funds from NRO to NRE account?


WHT taxes on some common transactions

• Import of Materials

- Exporter has PE in India

- Exporter donot have PE in India

• Commission Agent Outside India

- Commission for Commercial Activities

- Commission for technical activities



• Bandwith Charges?

• Reimbursement of Expenses:

“ If the main expenditure is not chargeable to tax in India either under IT Act or DTAA, than reimbursement of such expenses will also not be chargeable to tax in India. And vice-versa

• Remuneration of NR Directors:

- Employer Employee relationship

- Other



• Payment of college fees to university?

• Repatriation of Money?

• Payment to conference Speakers?

• E- commerce transactions?

• Software payments?

• When the interest is paid to foreign branch of Indian Bank?


AIDS to determine taxability of the remittance & Applicable TDS

• Documentary

- Agreement/Contract/ underlying the transaction

- Invoice/Debit notes being paid

- Other correspondence between parties for determining the exact nature of payment

- Website of NR- how they have described their Indian operations

- Copy of payee’s TRC for relevant period & form 10F.

- Application for TRC- if applied


AIDS to determine taxability of the remittance & Applicable TDS

• Written confirmation from Payee that:

- It was a tax resident of the country of residence during the relevant perios and is eligible for the benefits of the applicable DTAA

-It is the beneficiary of sum being remitted

-It doesnot have a PE in India within the meaning of applicable DTAA

Order certificate obtained- 195(2),195(3),197

SBI’s certificate – TT buying rates

ICAI guidance note on Audit Reports & Certificates for special Purposes


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Applicable section

Nature of default Consequence

40(a)(i) WHT not deducted or not deposited within prescribed time

Disallowance of expenses

201(1) Tax not withheld/deposited appropriately

Recovery of tax not withheld/deposited or short withheld/deposited

Interest u/s 201(1A)

Tax not withheld/deposited appropriately

Interest @1% per month or part of the month for non deduction. Further Interest @1.5% per month is payable from the date of deduction till the date when tax is actually paid

Penalty u/s221

Tax withheld not paid Penalty not exceeding the amount of tax not paid can be levied by AO

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Applicable section

Nature of default Consequence

Penalty u/s 271C

Tax not withheld or short withheld

Penalty, not exceeding the amount of tax not withheld can be withheld by Joint Commissioner

Penalty u/s 272A

Failure to file TDS return Penalty of INR 100 per day of default subject to maximum of tax deductible

Penalty u/s 271-I

Non furnishing of Information or furnishing of incorrect information u/s 195(6)

Penalty of INR 1,00,000 per transaction

Prosecution u/s 276 B

Failure to pay tax deducted Minimum: 3 months Maximum: 7 years

271J Penalty for furnishing incorrect information in reports / certificates

Rs.10,000 for each such report(from 1st April 2017)

Reporting of Foreign Remittances

• Section 195(6) of the Act provides that a person responsible for paying to a non-resident (hereafter referred to as ‘payer’) shall furnish such information as may be prescribed under Rule 37BB.


Rule 37BB

• Form No. 15CA is to be filled and submitted online by the deductor i.e. payer.

• Form 15CB is to be issued by the practicing Chartered Accountant (C.A) certifying (actually expressing his opinion) the taxability (chargeability) of the income in the hands of the payee and the amount of tax required to be deducted by the payer. In order to arrive at the amount of tax to be deducted the CA is required to take into account various applicable provisions of the Act (to compute the income of the non-resident payee) as well as provisions of the applicable Double Tax Avoidance Agreement (DTAA ) and other relevant supporting documents and agreement, if any.


Steps while making a Remittance

• Form 15CA is required to be furnished by the taxpayers for the purpose of remittance to a non-resident. It may be noted that Form 15CA should be filed in every case whether the remittance amount is chargeable to Incometax or not. However, exemption from filing of Form 15CA is provided in case of certain types of remittances.


Procedure where a remittance is not chargeable to tax:

• Such remittances are classified in the following two categories as follows: i. Non-reportable Transaction ii. Reportable transaction


Non-reportable Transactions

• In following two cases there is no requirement to furnish Form 15CA or Form 15CB. (i) Individuals making remittances under the Liberalised Remittance Scheme of FEMA and (ii) Certain specified remittances as listed herein below.


Reportable Transactions

• Any transaction other than the non-reportable category is considered as reportable transaction. In other words, even if the remittance is not chargeable to tax, information in respect of such remittance is required to be provided in Part D of Form 15CA.


What is the difference between earlier Rule 37BB and the new Rule 37BB which is effective from 1st April, 2016?

• Amendments in the new Rule 37BB as compared with earlier Rule 37BB are as follows: Form 15CA and Form 15CB will not be required if an individual is making a remittance, which does not require RBI’s approval under FEMA or under the Liberalised Remittance Scheme (LRS). The list of items which do not require submission of Forms 15CA and Form 15CB has been expanded from 28 to 33. The newly introduced items are as under – i. Advance Payments against imports ii. Payment towards import settlement of invoice iii. Imports by diplomatic missions iv. Intermediary trade v. Imports below Rs. 5 Lakh (For use by Exchange Control Department offices)


What is the difference between earlier Rule 37BB and the new Rule 37BB which is effective from

1st April, 2016?

• Only the payments which are chargeable to tax under the provisions of Act in excess of Rs. 5 Lakh would require Certificate from a Chartered Accountant in Form 15CB.

A new reporting obligation is introduced for the authorised dealers (ADs) (i.e. the Banks). ADs will have to file Form 15CC (quarterly) in respect of the foreign remittances made by them.


Form 15CA: Part A

Small Value Taxable payments

Position from 1st April 2016 Part A

Reporting in Part A- Threshold: Payments upto Rs.5,00,000 in a FY CA. Certificate: Not required

Small Value Taxable payments

Position upto 31st March 2016 Part A

Reporting in: Part A Thsreshold: Payments not exceeding Rs.50,000 singly and aggregate of Rs.2,50,000 in a FY CA certificate: Not required


Form 15CA-Part B

High Value Taxable payments where certificate/order u/s 197,195(2),195(3) has been obtained

Position from 1st April 2016 Part B

Reporting in Part B- Threshold: Payments exceeding Rs.5,00,000 in a FY CA. Certificate: Not required

High Value Taxable payments where certificate/order u/s 197,195(2),195(3) has been obtained

Position upto 31st March 2016 Part B

Reporting in: Part B Thsreshold: Payments exceeding Rs.50,000 singly and aggregate of Rs.2,50,000 in a FY CA certificate: Not required


Form 15CA-Part C

High Value Taxable payments where certificate/order u/s 197,195(2),195(3) has not been obtained

Position from 1st April 2016 Part C

Reporting in Part C- Threshold: Payments exceeding Rs.5,00,000 in a FY CA. Certificate: required

High Value Taxable payments where certificate/order u/s 197,195(2),195(3) has not been obtained

Position upto 31st March 2016 Part B

Reporting in: Part C Threshold: Payments exceeding Rs.50,000 singly and aggregate of Rs.2,50,000 in a FY CA certificate: required


Form 15CA-Part D

Payments not taxable under the act (other than the specified payments which are exempt from reporting)

Position from 1st April 2016 Part D

Reporting in Part D- CA. Certificate: not required

Payments not taxable under the act (other than the specified payments which are exempt from reporting)

Position upto 31st March 2016 Part D

Based on the past provisions , a position was possible that reporting did not apply to non taxable remmitances


CA.SHWETA AJMERA SHWETA AJMERA & COMPANY

CHARTERED ACCOUNTANTS

Email: [email protected]


Icai 17.02.2017 Taxation of foreign remmitances

Law

Transcript of Icai 17.02.2017 Taxation of foreign remmitances