Global Tax Alert | 12 August 2013

India's CBDT revises rules on furnishing information regarding payments to nonresidents

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Executive summary

India’s Central Board of Direct Taxes (CBDT), the administrative authority for direct taxes, recently issued Notification No. 58/20131 (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 (the Remitter) to a nonresident (the Recipient). The revised Rule mandates reporting of certain additional information and a new format for furnishing information in revised Forms. The revised Rule shall come into force as of 1 October 2013.

This Tax Alert summarizes the key features of the revised Rule.

Background

As per the provisions of Indian Tax Laws (ITL), a Remitter making payment to a Recipient of any sum subject to tax is required to withhold tax at source at the prescribed rates. With effect from 1 July 2009, such Remitter is required to furnish electronically certain information regarding the payments in such form and manner as prescribed by the CBDT in accordance with the Rule. With a substantial increase in foreign remittances, the requirement of electronic reporting of information was introduced to track information regarding remittances outside India, so that tax recovery may be expedited.2

The existing Rule provides for the 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). In the present form of the Rule, the reporting is linked with the withholding obligation of the Remitter on payments subject to tax in India.

Notification

The Notification revises the Rule, with effect from 1 October 2013, to provide for a new manner and format of furnishing information by the Remitter for all remittances to a nonresident. The revised Rule provides for different formats of furnishing of information in three circumstances as follows:

Sl. No.

Information

Part A

Part B

Part C

1.

Nature of remittance

Small payments not exceeding INR 50000 and aggregate of such payments during the tax year not exceeding INR 250000. Remittance may or may not be subject to tax.

Specified Payments3 not subject to tax in India

Any other payments subject to tax

2.

Contents of Self- Declaration

Revised (see Significant features of the revised Self-Declaration section below)

3.

Requirement of CA Certificate

No

No, with a declaration from Remitter of bona fide belief about non-taxability of the payment under the ITL

Yes, if tax withholding order not obtained from tax authority.

Significant features of the revised Self-Declaration

Part A – Small remittances

Self-Declaration includes:

  • General information of the Remitter and Recipient including contact details, and tax identification number.
  • Information relating to the proposed remittance including bank information, nature of the remittance, taxes withheld, and if taxes are not withheld, brief reasons for the same.
  • An aggregate amount of the remittance made by the Remitter during the tax year (including the proposed remittance).

The Remitter is also required to verify the information furnished and undertake to cooperate with the tax authority by furnishing requisite documents for determining taxable income of Recipient or tax withholding liability of the Remitter under the ITL.

Part B – Specified payments

  • This is a new reporting requirement for specified payments3 which are not subject to tax in India.
  • The information sought as a part of the Self-Declaration is similar to Part A. Information may be furnished without obtaining a CA Certificate with the declaration of a bona fide belief of the Remitter about non-taxability of the payment under the ITL.
  • In addition to an undertaking, as prescribed in Part A (as stated above), the Remitter also undertakes the liability to pay any taxes due along with the interest and penalty in case it is found that the remittance was taxable in India.

Part C (and CA Certificate) – Other chargeable payments

  • The information required under Part C is more detailed and largely similar to the existing Self-Declaration. Such information should be based on the CA Certificate or tax withholding orders obtained from tax authorities.
  • Broadly, Part C includes:
    • General information on Remitter and Recipient similar to Part A/B; details of CA certificate and orders from the tax authority.
    • Information regarding the remittance (including nature of payment, Bank, BSR Code, country of Recipient, etc.).
    • Detailed information on the taxability of payment under the ITL as well as tax treaty, basis on treating income as not subject to tax as also for non-withholding4 etc.
    • Details about a tax residency certificate where a tax treaty is invoked.

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 remitting the payment. 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

This amendment highlights the current trend of the Indian tax administrators to enhance, broaden the base and strengthen the mechanism for collecting information particularly in the context of overseas remittances. The revised Rule seeks to widen the ambit of reporting remittances outside India and covers all payments even if they are claimed to be non-chargeable to tax in India. The undertaking obtained as part of the Self-Declaration does mandate the Remitter to provide requisite details and documents so as to enable tax authorities to evaluate tax liability in India. Tax deductors need to comply with the revised Rule which is effective as of 1 October 2013 and until that date, information would be furnished as per the present Rule in the existing forms.

Additionally, by an amendment to the ITL in 2012, the CBDT is empowered to notify such class of persons to make an application to the tax authorities for determining the sum chargeable to tax, by general or special order, and such person would be required to furnish the information as may be prescribed. While this is yet to be prescribed, the trend highlights the focus on collection of information for enforcing tax compliances in India.

Endnotes

1. Income-tax (12th Amendment) Rules, 2013 [F.NO.149/119/2012-SO(TPL)]/SO 2363(E), dated 5 August 2013.

2. See EY Tax Alert CBDT prescribes rules for furnishing information in respect of payments to nonresidents, dated 6 April 2009.

3. A Specified list of 39 payments is provided under the revised Rule which includes, inter alia, payments for outbound investments, loans, import settlements, transactions by shipping companies, personal transactions (like donations, gifts), construction of projects abroad, payment towards international bidding, etc.

4. Presently, a similar but broader reporting is limited to passive income streams only (like royalty, FTS, interest, dividend, etc.).

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
  • Hitesh Sharma
    +91 22 6192 0620
    hitesh.sharma@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. CM3728