Global Tax Alert | 10 September 2013

India's CBDT amends recently revised rules relating to furnishing information regarding payments to nonresidents

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Executive summary

On 2 September 20013, India’s Central Board of Direct Taxes (CBDT), the country’s apex administrative authority for direct taxes, issued Notification No. 67/20131 (Notification) revising the existing Rule 37BB (Rule) of the Income Tax Rules 1962 which prescribes the manner and forms for furnishing information electronically by a person responsible for making any payment (Remitter) to a nonresident (Recipient). This Notification overrides an earlier notification 58/2013 dated 5 August 2013 which amended the Rule by providing a new manner and form of furnishing information.2

The Notification mandates reporting of information regarding any payment made to a nonresident including interest, salary or any other sum chargeable to tax, in an amended format. The revised Rule shall come into force as of 1 October 2013. This Alert highlights the key features of the Notification.

Background

As per the provisions of Indian Tax Laws (ITL), a Remitter making payment of any sum subject to tax to a Recipient is required to withhold tax at source at the prescribed rates. With effect from 1 July 2009, such Remitter is required to electronically furnish certain information relating to the payments in such form and manner as prescribed by the CBDT vide the Rule. The existing Rule provides for electronic furnishing of information by the Remitter in Form 15CA (Self-Declaration), while making payment to the Recipient, based on a certificate from a Chartered Accountant in Form 15CB (CA Certificate).

The Notification dated 5 August 20132 (Old Notification) amended the above Rule to provide for a new manner and format of the reporting of information. It also extended the scope of the Rule to cover reporting of all payments made to a nonresident whether subject to tax in India or not. Previously, the reporting was linked with the withholding obligation of the Remitter on payments subject to tax in India. The new Notification which further revises the scope and format of reporting of information under the Rule overrides the Old Notification.

The Notification

Scope of payments covered

The revised Rule requires furnishing of information in relation to all payments made to a nonresident which are subject to tax in India. The scope of covered payments is expanded to include payments such as salary, interest on external commercial borrowing, income of sportsmen/sports associations, income from transfer of foreign currency units held by offshore funds, income from foreign currency bonds/shares of Indian company, income of foreign institutional investors from securities and income from lottery/crossword puzzle/horse race. The above payments are not presently required to be reported under the existing Rule. The Notification also lays down a specified list of payments which are not required to be reported under the revised Rule. 3

Manner and forms for reporting

The Notification requires furnishing of information in the following manner:

(i) In Part A of “Self-Declaration,” if the amount of remittance does not exceed INR 50,000 and the aggregate of such remittances made during the financial year does not exceed INR 250,000.

This requirement is similar to the Old Notification. Also the contents of the Self-Declaration are similar to that provided in the Old Notification, excluding the information regarding remittances not subject to tax.

(ii) In Part B of ”Self-Declaration,” for payments other than those covered under Part A after obtaining a CA Certificate or withholding orders from Indian Tax Authority.

This requirement is similar to Part C in the Old Notification. The contents of the Self-Declaration are also similar, covering the details about the Remitter, Recipient, Bank, CA Certificate/withholding orders and expansive information about the remittance and its taxability under the ITL as well as the applicable tax treaty.4

Procedure for filing the Self-Declaration

Once the Remitter furnishes the above information (as applicable) on the Government’s designated website, a signed hard copy of the Self-Declaration is required to be submitted to the Bank prior to the payment remittance. The revised Rule also empowers any tax authority to obtain a copy of Self-Declaration from the remitting Bank for the purpose of any proceedings under the ITL.

Impact

The Notification, while seeking to reduce the compliance and administrative burden on taxpayers on certain categories of payments, also seeks enhanced reporting norms for certain other types of payments. The revised reporting is likely to enable more stringent withholding enforcement on cross-border payments. Taxpayers should review the Notification and assess the impact the same would have on their tax compliance obligations.

Endnotes

1. Income-tax (14th Amendment) Rules, 2013 [F.NO.149/119/2012-SO SO(TPL)]/SO 2659(E), dated 2 September 2013.

2. Notification No. 58/2013 dated 5 August 2013. Please refer to EY Global Tax Alert, India’s CBDT revises rules on furnishing information regarding payments to nonresidents, dated 12 August 2013.

3. The specified list contains 29 items covering mainly payments relating to capital and personal transactions. Under the Old Notification, a similar list of payments (including few more items) was given as “specified payments” which were required to be separately reported under Part B, whether chargeable to tax or not.

4. See Alert referenced in endnote 2 for details on contents of Self-Declaration in Part C.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (India), Mumbai
  • Sudhir Kapadia
    +91 22 6192 0900
    sudhir.kapadia@in.ey.com
Ernst & Young LLP (India), Hyderabad
  • Jayesh Sanghvi
    +91 40 6736 2078
    jayesh.sanghvi@in.ey.com
Ernst & Young LLP (United Kingdom), Indian Tax Desk, London
  • Nachiket Deo
    +44 20 778 30862
    ndeo@uk.ey.com
Ernst & Young Solutions LLP, Indian Tax Desk, Singapore
  • Gagan Malik
    +65 6309 8524
    gagan.malik@sg.ey.com
Ernst & Young LLP, Indian Tax Desk, New York
  • Tejas Mody
    +1 212 773 4496
    tejas.mody@ey.com

EYG no. CM3793