Tax deducted at source/ Withholding tax u/s 195 of Income TAx Act in India, Withholding tax liability as per DTAA, MLI Income on TDS on payment made to NR, Form 15CA &Form 15CB compliances. and Declaration , Indemnificaton in recent scenario. Regards: CA.Shweta Ajmera cashwetaajmera@gmail.com

1. Institute of CharteredAccountants of India
WIRC of ICAI, Mumbai
CA.ShwetaAjmera
TDS ON FOREIGN REMITTANCES
Section 195 ITA - covering MLI Aspects
1

2. CA.ShwetaAjmera
"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.
2

3. Introduction
CA.ShwetaAjmera
I have received an
invoice from a foreign
company for payment
Finance Manager
ABC Limited
What should I
do?
3

4. CA.ShwetaAjmera
Section 195
4

5. Beginning:
CA.ShwetaAjmera
CBDT Circular 152 dated 27.11.1974.
Tax to be collected at earliest point of time.
No difficulty in collection of tax at the time of assessment
(Easiest mode of collection)
To avoid loss of revenue as the non residents may sometimes
have no asset in India from which subsequent recovery can be
made.
Protect tax revenue for government and prevent tax evasion.
5

6. Objective of section 195:
CA.ShwetaAjmera
AAR in case of XYZ, In RE: P.No.18 of 1995(1999) 238
ITR 575:
“ The objective is to ensure, as best as possible, that the tax
liability on the income element, on the amount paid is got
deducted at source itself so that the department is not put
to the hassles of recovering it from the non resident whose
connections with India may be transient or whose assets
in India may not be sufficient to meet the tax liability”
6

7. Objective of Section 195
CA.ShwetaAjmera
Vodafone International Holdings B.V. v. Union of
India (2012)341ITR1(SC)
“The object of Section195 is to ensure that tax due from
non‐resident persons is secured at the earliest point of time so
that there is no difficulty in collection of tax subsequently at
the time of regular assessment.”
7

8. CA.ShwetaAjmera8
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?
Why discuss Section 195?

9. 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
CA.ShwetaAjmera9
AN OVERVIEW OF TDS U/S. 195

10. CA.ShwetaAjmera
Any person responsible for paying to a non-resident, not
being a company or to a foreign company, any interest (not
being interest referred 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.
Section 195(1)
10

11. Analysing section 195(1)
CA.ShwetaAjmera
“Any person responsible for paying”
Payer- “any person” defined as per section 2(31) of Income tax Act:
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.
Whether person includes Non-Resident?
Whether includes any person having no income?
F.Co having POEM in India?
11

12. CA.ShwetaAjmera
“Payment made to Non-resident”:
“a non-resident”
Includes NRIs?
Whether it will include R but NOR ?
Whether it will include stateless persons deemed to
be citizen of India as per section 6(1A)?- Finance Act
2020.
Whether it includes foreign company?(CBDT
Notification No. SO 3039(E) dated 22nd June 2019,
point (x))
Analysing section 195(1)
12

13. CA.ShwetaAjmera
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
Unique Features of section 195 as
compared to other TDS Provisions
13

14. Payments covered?
CA.ShwetaAjmera
any interest (not being interest referred 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)
14

15. CA.ShwetaAjmera
Section Particulars
194E Payments to Non-Resident Sportsmen or Sports
Association
194LB Income by way of interest from Infrastructure Debt fund
194LBA(2
)/(3)
Distributed income referred to in section 115UA-10(23FC)
and 10(23FCA)
194LC Interest payable by specific company or business trust
194LD Interest payable to FII or QFI
Sec. 195 Other sums
TDS Provisions – Non Residents - ITA
15

16. CA.ShwetaAjmera
Section Particulars
196A Income in respect of units of Non residents
196B Income from Units
196C Income from foreign currency bonds or shares of Indian
company
196D Income of foreign Institutional Investors from securities.
TDS Provisions – Non Residents - ITA
16

17. CA.ShwetaAjmera
Section Particulars
192 Salary
192A Payment of Accumulated balance due to an employee
194B Winnings from lottery or crossword puzzle
194BB Winning from Horse Race
194G Commission etc on sale of lottery tickets
194LBB 10(23FBB) r.w.s. 115UB
TDS Provisions – Non Residents along with
Residents - ITA
17

18. Exemption from TDS
CA.ShwetaAjmera
Shipping income under S. 172 [Circular no. 723 dated
19.9.1995].
Payment liable to Equalisation Levy [S. 163 of FA
2016].
Capital Gain earned by FII (now FPI) [S. 196D(2)].
Payment of interest by Offshore Banking unit to a
non-resident or not ordinarily resident [S. 197A(1D)].
18

19. Determination of ‘Any sums
chargeable to tax’…
CA.ShwetaAjmera
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
Citizenship- section 6(1A)
Deemed Income: section 7 & section 9
19

20. 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.
“Every person includes non resident assessee’s”
CA.ShwetaAjmera20
Charging section:

21. 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 6 of the Income Tax Act 1961 states about the residential
status of a person. Non Residents are separately categorised in it.
Section 7 and 9 of the act explains the term “Income deemed to
be received” and “Income deemed to accrue or arise in India”.
21 CA.ShwetaAjmera
Section 5,6,7 & 9 of IT Act

22. • 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
Capital Gains S. 9(1)(i), S.45 A.6 & 13
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
sec ion 90- Provisions of IT ACT treaty read with MLI, Whichever is
beneficial prevails
22
Any Sums chargeable to tax:

23. Business Connection
CA.ShwetaAjmera
Business Connection not defined, has been explained by
the Courts.
Occasional activity is not covered. Any activity which is
regular is considered as Business Connection.
Income attributable only to Operations carried out in
India is deemed to accrue in India.
Income due to activities of Dependent agent are deemed
to accrue in India. Income to the extent attributable to
operations carried out in India is deemed to accrue in
India.
Income due to activities of Independent agent are not
deemed to accrue in India.
Significant Economic Presence in India will be considered
as Business connection. (Deferred by FA 2020).
23

24. Indirect Transfer
CA.ShwetaAjmera
Section 9(1)(i), Explanation 5:
Asset or Capital asset,
being share or interest,
in a company or entity,
registered or incorporated outside India,
shall be deemed to be situated in India,
if the share or interest derives directly or indirectly, its value
substantially from assets located in India.
24

25. Salary
CA.ShwetaAjmera
Salary is deemed to accrue in India if:
- services are rendered in India. Rest period before
and after the services are deemed to accrue in India.
- Pension?
-salary is paid by Government to an Indian citizen for
services outside India.
25

26. Interest, Royalty, FTS
CA.ShwetaAjmera
Interest, Royalty and FTS are deemed to accrue in India if
these are paid to a non-resident by:
--Government.
-- Indian resident – unless it is for business carried on outside
India, or for earning income from a source outside India.
(E.g. Indian resident has a branch outside India and interest is paid for that
branch to a bank outside India, it is not considered as accrued in India.)
--Non-resident – if these are for carrying on business in India, or
for earning income from a source in India.
--(For interest payment, if it is paid for carrying on business in
India, then only it is deemed to accrue in India.)
(E.g. If a non-resident pays management consultancy fees to UK
firm for his Indian business, it is considered as accrued in India.)
26

27. Determination of ‘Any sums
chargeable to tax’…
CA.ShwetaAjmera
Tax is deductible on “sum chargeable to tax”. This is the
basis of determining whether tax is to be deducted or not. If
the sum is “not chargeable to tax”, than noTDS.
Chargeability to tax determined based on:
-Whether the income is received, accrues, or can be deemed to be
received or accrued in India- section 5 r.w. section9
-Characterisation of Income in hands of Non residents.
-NR’s eligibility to claim DTAA benefits.
27

28. Any sum Chargeable:
CA.ShwetaAjmera
What would be the treatment in case of composite
payments?
Transmission corporation of AP Ltd.(1999) (105taxman 742)(SC)
-Tax liable to be deducted by payer on the gross amount, if the
payment includes an amount chargeable to tax in India.
Application to be made u/s 195(2) for permission to deduct tax on
lower amount (Google India pvt Ltd. (2017) (86 taxmann.com 237)
Samsung Electronics Co. Ltd.(2009) (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. Unless an order
was obtained u/s 195(2), the obligation to deduct tax arose the
moment remittance is made to NR.
28

29. CA.ShwetaAjmera29
– 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)
Any Sum Chargeable to tax:

30. CA.ShwetaAjmera30
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.
CBDT Circular No.3/2015 dated 12 February
2015- Disallowance u/s 40(a)(i) to be computed
on the taxable portion & not on the whole sum
remitted
Sum chargeable to tax-CBDT Ruling

31. Person buying flat from NR:
CA.ShwetaAjmera
Indian resident wants to purchase a flat from an NRI. Should
he deduct tax at source from the full sale consideration, or
from the capital gain only?
Syed Aslam Hashmi – 26 taxmann.com 6 (Bang. ITAT
2012)
R.Prakash – 38 taxmann.com 123 (Bang ITAT) 2013
TDS should be on sale proceeds.
Decisions have not considered SC decisions in GE Technologies and
Transmission Corporation in correct perspective.
31

32. Recent Rulings
CA.ShwetaAjmera
Volksvagen Finance Private Ltd(VFPL) – (ITAT)
VFPL along with Audi India (a division of
Volksvagen Group sales Limited) had organised an
event in Dubai on 3 May 2014. VFPL has paid
$4,40,000 to Mr.Nicholas cage (hollywood celebrity
from USA) at an event in Dubai.
Whether this transaction will be taxable in India?
ITAT Ruling: Intangible Business Connection
32

33. • Tax withholding from payment in kind
– Kanchanganga Sea Foods Ltd. (SC) [2010](325 ITR
540)(SC) – charter fee for fishing vessels was paid in
the form of fish catch
– Biocon Biopharmaceuticals (P. Ltd.) [2013](144 ITD
615)(Bng ITAT) shares were issued as a
consideration for provision of technology and
knowhow.
- Payment made online, via credit card or
Bitcoins(Cryptocurrency)
CA.ShwetaAjmera33
Mode of Payment:

34. DTAA (Double Taxation Avoidance
Agreements) (Treaty)
CA.ShwetaAjmera
On basis of Scope:
-Comprehensive DTAA- they provide for taxes on Income,
capital gains etc.
-Limited DTAA-They refer only to income from shipping and
air transport, or estates, inheritance or gifts.
• On the basis of parties to treaties:
-Bilateral treaties- DTAA entered into two countries.
-Multilateral treaties- DTAA entered into group of countries.
34

35. Different types of Model of Tax treaties
CA.ShwetaAjmera
OECD Model: This model lays emphasis on residence based
taxation. Developed countries adopts this model in case of
treaties with other developed countries.
UN Model: This model lays emphasis on source based
taxation, Developed countries adopt this model in case of
treaties with developing countries or between two
developing nations.
US Model: This model is basically used by USA for all
treaty negotiations. This model had influence on the existing
treaty between India & US.
35

36. DTAA (Double Taxation Avoidance
Agreement)
CA.ShwetaAjmera
Preamble.
Dual Resident-Tie Breaker rule.
Permanent Establishment- Service PE/Agency PE.
Make available
MFN Clause
LOB clause
Protocol
36

37. CA.ShwetaAjmera
MLI (Multilateral Instrument)
37

38. BEPS Background
CA.ShwetaAjmera
In order to protect tax base and to ensure multinational
corporations pay their fair share of taxes, G20 countries
alongwith OECD came up with Base Erosion and Profit
Shifting (BEPS)Action points.
Various bilateral treaties were required to be amended in
order to implement some of above objectives.
In order to amend all the treaties at the same time, BEPS
Action Plan 15 suggested a Multilateral Instrument (MLI).
38

39. MLI- Timelines
CA.ShwetaAjmera
July 2013 BEPS Action Plan submitted
February 2015 Group formed for developing MLI
October 2015 BEPS final Package of measures released
November 2016 Text of MLI adopted by group
June 2017 First Signing ceremony
39

40. Steps for implementing MLI
CA.ShwetaAjmera
Adoption
Signing
Ratification & Notification
Depositing instrument of ratification with OECD
Depository.
40

41. What is MLI, its
objective
• Single instrument that modifies bilateral tax treaties in a
synchronised, fast and consistent manner
• One negotiation, one signature, one ratification
Impact
• Modified 1200+ tax treaties in first signing; intended to cover
3000+ tax treaties
Actions implemented
• Action 2 (Hybrid mismatches)
• Action 6 (Treaty abuse)
• Action 7 (PE)
• Action 14 (Dispute resolution)
Legal status
• MLI does not function as protocol, needs to be read with
existing tax treaties
• Does not replace existing tax treaties but modifies them
Features of MLI
• PPT
• PPT+SLOB
• DLOBOptionsCA.ShwetaAjmera41

42. Entry into force and Entry into effect
Particulars Entry into force
For first 5 jurisdictions who deposit
their ratified copy of MLI with
OECD
MLI to come into force on the first day of the month following the expiry of 3
calendar months from date on which 5th Signatory has deposited its instrument
for ratification
From this date, all 5 signatories become‘parties’ to the MLI and shall be bound
by it
For other jurisdictions First day of the month after the expiry of 3 months from the date of deposit of
its instrument of ratification
Particulars Date of entry into effect
Provisions related to withholding
taxes
1st day of next calendar year that begins on or after the relevant date
Provisions related to other taxes Taxable period that begins on or after expiry of 6 calendar months from
the relevant date
Entry into force (‘EiF’) for MLI:
Entry into effect (‘EiE’) for the respective CTA:
Computed from the latest date of EiF for each of the treaty partners of a CTA – referred as “relevant date”
► Option to replace “calendar year” with “taxable period” for purpose of its own application- India has opted for such
replacement
► Option for delay until such country has completed its internal procedures for this purpose- India opted for such extension
CA.ShwetaAjmera42

43. Timelines for the applicability of MLI (example)
1.Ratification and
filing with OECD
2. Entry into force
(‘EOF’):
First day of month
following col. 1 + 3
months
3. Entry into Effect (EIF) :
i. Withholding taxes :
1st day of calendar year
(taxable period for India)
that begins on or after later
of EOF
ii. Other taxes:
For taxable periods
beginning on or after 6
months from later of EOF
India Singapore India Singapore India Singapore India Singapore
25 June
2019
21 Dec
2018
1 Oct
2019
1 April
2019
1 April
2020
1 Jan 2020 1 April
2020
1 Jan 2021
India Canada India Canada India Canada India Canada
25 June
2019
21 Dec
2019
1 Oct
2019
1 April
2020
1 April
2020
1 Jan 2021 1 April
2021
1 Jan 2021
CA.ShwetaAjmera43

44. Indian tax treaties impacted by MLI w.e.f.1 April
2020
Examples of India’s choices for MLI clauses and compatibility with CTA
Sr. No. Country Sr. No. Country Sr. No. Country
1 Australia* 11 Israel 21 Russia
2 Austria* 12 Japan* 22 Serbia*
3 Belgium* 13 Latvia* 23 Singapore*
4 Canada 14 Lithuania* 24 Slovak Republic*
5 Denmark 15 Luxembourg* 25 Slovenia
6 Finland* 16 Malta 26 Sweden
7 France 17 Netherlands 27 Ukraine
8 Georgia* 18 New Zealand 28 UnitedArab Emirates*
9 Iceland 19 Norway 29 United Kingdom*
10 Ireland* 20 Poland*
# No impact on India’s treaties with few major partners like US, Mauritius, Germany
* SynthesizedText available for 17 IndianTaxTreaties – Singapore, UK, Luxembourg, Japan, UAE,Australia,Austria,
Finland, Ireland, Poland, Lithuania, Slovak Republic, Serbia, Belgium, Georgia, Latvia, etc.
US investments through above jurisdictions, likely to be impacted by MLI w.e.f. 1April 2020.
CA.ShwetaAjmera44

45. Synthesised Text of CTAs
► OECD suggested that countries at their discretion may develop consolidated
versions of their CTAs which would provide text of treaties as modified by
MLI
► In this regard, OECD released a guidance on preparation of Synthesised Text
(‘ST’) in November 2018.
► OECD Guidance:
i. Contents of ST – STs would include explanatory information in the form of
disclaimer, including information on the date on which provisions of MLI
enter into effect.
ii.Sole purpose of this document is to facilitate understanding of application of
MLI to treaty and the document doesn’t constitute a source of law.
iii.MLI signatories have no legal obligation under the MLI to develop the STs
of CTA.
iv.Parties to CTA are not obliged to consult each other in developing CTA,
however the parties may consult each other for ensuring consistent
interpretation of application of MLI provisions. Even if both the parties
consult each other, ST remains as a facilitator and not a legal document.
CA.ShwetaAjmera45

46. Synthesised Text of CTAs
CA.ShwetaAjmera
► Summary on ST
i.Since STs are not legally binding, there is no need to
notify such STs. Also in case of any mismatch, text of MLI
along with the pre-modified treaty shall prevail.
ii.MLI will apply and modify the relevant CTA as on the
effective dates irrespective of whether ST of such CTA is
prepared or not. wherein it was held that MFN clause is
self-operational and is integral part of treaty.
iii. MLI is auto-executory and there is no need to issue any
notification or ST.
iv.Legal value of unilateral or bilateral ST remains the
same.
46

47. OECD MLI Matching Database
CA.ShwetaAjmera47

48. MLI & section 195 (Form 15CB certification)
CA.ShwetaAjmera
Article 4 of MLI (Dual Resident entities)
In case of dual resident entities, in place of POEM tie-breaker
rule, competent authorities would determine the residential
status having regard to incorporation, POEM, etc
Till such determination, DTAA benefits shall not apply
Article 7 of MLI (Principal Purpose test)
No benefit of DTAA if one of the main purpose of transaction is
to obtain DTAA benefit
Article 12 of MLI (Commissionaire arrangements)
Agent shall constitute PE if he plays a principal role in conclusion
of contract
Agent is not independent if his activities are wholly or almost
wholly on behalf of enterprise or CRE (Closely Related Ent.)
48

49. MLI & section 195 (Form 15CB
certification)
CA.ShwetaAjmera
Article 13 of MLI (Specific Activity exemption)
Preparatory and auxiliary benefit for PE is not available if
each activity is not P&A
Activities of CRE (Closely related to such enterprise) in
State to be considered.
Article 14 of MLI (Splitting of Contracts for Installation PE)
Activities of CRE (Closely related to such enterprise) to be
considered in determining number of days.
49

50. CA.ShwetaAjmera
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.
50
Rate of TDS

51. TRC
Form 10F
PAN
PE Declaration
CA.ShwetaAjmera51
Details needed for claiming treaty
benefits

52. TRC - Tax Residency Certificate
CA.ShwetaAjmera
TRC of a non-resident is pertinent for determining the tax
residency while withholding taxes under the treaty provisions
With BEPS into action, it is now significant to determine,
among other things, the beneficial ownership and
substance that non-resident has in the country that it claims
to be country of residence
BO: Person exercising control over legal person and BO must
always be a natural person.(Difference in LO & BO)
“The secret of success is to own nothing but to control
everything”
52

53. CA.ShwetaAjmera53
Sec 90(4)- Every NR desirous to take DTAA benefit-to obtain
TRC
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
TRC-Tax Residency Certificate

54. TRC in other countries
CA.ShwetaAjmera
UK HMRC:
If needed by the Double taxation arrangement, confirmation
that you are:
The Beneficial owner of the income you want to make a
claim for, Subject to the UK tax on all the income you want
to make a claim for
Australia
A statement whether the Australian resident is only a tax
resident of Australia or whether the Australian resident is also
dual resident under the relevant tax treaty
54

55. CA.ShwetaAjmera55
Section begins with Non-obstante phrase – “Not
withstanding anything contained in any other
provisions of this act …”.
Recipient of sum, income or amount on which tax is
deductible, has to furnish his PAN to the payer.
If PAN is not furnished, payer has to deduct tax at
higher of the following rates:
rate in specific provision of the act;or
rate in force; or
rate of 20% (S. 206AA(1)(iii).
Section 206AA

56. CA.ShwetaAjmera56
Rule 37BC vide CBDT Notification No.53/2016 dated 24th June
2016:
PAN not required for payment of: Interest on Long Term
Infrastructure bonds referred to in S. 194LC. & for “Specified
incomes”: Interest, Royalty, FTS, and For transfer of capital
asset (capital gain), But only if non-resident provides
specified information and documents (Rule 37BC(2)).
- 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)
Section 206AA

57. CA.ShwetaAjmera57
On DTAA rates?
On Income tax Act Rates?
Section 195A Grossing Up of tax
“Net of Tax” arrangement where payer bears the tax
liability. Tax being calculated on the gross amount.
Surcharge & Education Cess & Grossing Up

58. CA.ShwetaAjmera58
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 11.128 %(including
surcharge & cess) and tax rate under the DTAA is
10%.Calculate TDS?
Examples --section 195A

59. CA.ShwetaAjmera
Net Payment 100
Rate in force as per 2(37A)- 10%(i.e. the
beneficial rate between 11.128% 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)
59

60. Q2. X Co. doesnot have PAN and yet to obtain TRC?
CA.ShwetaAjmera60
Net Payment 100
Rate in force as per 2(37A)- 10%(i.e. the
beneficial rate between 11.128% 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)

61. • 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
• 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
CA.ShwetaAjmera
Section 195(2)
61

62. • 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)
CA.ShwetaAjmera62
Section 195(2)

63. •Whether applying for NIL/lower 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
CA.ShwetaAjmera63
Section 195(2)

64. • 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
CA.ShwetaAjmera64
195(3)-Application by payee

65. Payee can make an application in prescribed form
(Form 15C and 15D) to the AO for nil WHT certificate
Subject to stringent conditions prescribed under Rule
29B:
Assessee has been regularly assessed to tax and has filed all returns
of income due as on the date of filing of application;
Not in default in respect of any tax interest, penalty, fine, or any
other sum;
Not subjected to penalty u/s 271(1)(iii) of the Act;
Carrying on business in India continuously for at least five years
and the value of the fixed assets in India exceeds Rs 50 lakhs.
What if payee not complying this conditions?- section 197
Section 195(3) - Application by the payee
for Nil WHT Certificate
CA.ShwetaAjmera65

66. A certificate granted u/s 195(3) shall remain in force:
for the FY mentioned therein, or
until cancelled by the AO before expiry of FY
Filing of subsequent application?
After the expiry of the period of validity of the earlier
certificate, or within three months before the expiry
thereof.
Section 195(4) – Validity of certificate
issued by AO
CA.ShwetaAjmera66

67. [(7) Notwithstanding anything contained in sub-section (1) and
sub-section (2), the Board may, by notification in the Official
Gazette, specify a class of persons or cases, where the person
responsible for paying to a non-resident, not being a company, or
to a foreign company, any sum, whether or not chargeable under
the provisions of this Act, shall make an application to the
Assessing Officer to determine, by general or special order, the
appropriate proportion of sum chargeable, and upon such
determination, tax shall be deducted under sub-section (1) on
that proportion of the sum which is so chargeable.]
Still the class of persons not notified.
195(7)- Power of CBDT to specify class of
persons:
CA.ShwetaAjmera67

68. Application by whom: Payee
When : If payee considers that tax withholding can be
at ‘nil’ or ‘lower rate’.
Process : Application can be made to the AO in Form
13 to determine the tax rate. Application to be made
before the payment/ credit, whichever is earlier
Upon determination : Tax shall be withheld only at
the rate provided in the certificate issued by the A.O.
Section 197 – Application for lower or nil
certificate by payee
CA.ShwetaAjmera68

69. 195(2)/195(3)/197
CA.ShwetaAjmera69

70. Recent notification:
CA.ShwetaAjmera
Date of Lower withholding certificate extended till 30th june
CBDT vide order u/s 119 F.No.275/25/2020-IT(B) dated
31.03.2020
For those assessee’s who have been issued such lower or NIL
certificates for FY 2019-20 and currently have applied for FY
2020-21 only in respect of those transactions and such
deductors or collectors for whom the certificate was issued
for FY 2019-20.
70

71. Temporary measures
CA.ShwetaAjmera
For those assessee who could not apply for issue of lower or
NIL deduction ofTDS for FY 2020-21 as on this date, but
were issued such certificate for FY 2019-20, then such
certificate shall be extended till 30.06.2020 for FY 2020-21.
However there is a need to apply as soon as normalcy is
restored or 30.06.2020 whichever is earlier by giving in the
details of transaction, deductors or collectors.
For those assessee’s who have not applied for FY 2020-21 and
donot have such certificate for FY 2020-21, than a modified
approach has been prescribed to approach AO via email and
attach all the relevant documents in email.
71

72. CA.ShwetaAjmera72
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)
Relevant Foreign Exchange Rates

73. CA.ShwetaAjmera73
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

74. CA.ShwetaAjmera74
Written confirmation from Payee that:
- It was a tax resident of the country of residence during the
relevant period 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
AIDS to determine taxability of the
remittance & Applicable TDS

75. Declaration post MLI
CA.ShwetaAjmera
Compliance with Article 7 of MLI- Prevention ofTreaty abuse:
1. Obtaining benefit of treaty is not a principle purpose.
2. Beneficial owner.
3. Non resident payee is not a shell or conduit company.
4. All necessary facts for purpose ofWHT in India as per
provisions of Income tax Act and treaty have been disclosed
with the payer.
75

76. CA.ShwetaAjmera76
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

77. CA.ShwetaAjmera77
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
271-I
Non furnishing of
Information or furnishing of
incorrect information u/s
195(6)
Penalty of INR 1,00,000 per
default
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)

78. • 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.CA.ShwetaAjmera78
Refund of tax Withheld u/s 195

79. CA.ShwetaAjmera
Form 15CA/15CB
79

80. Circular/Notification number & Date Clarification
C 759 Dt 18th Nov 1997 FEMA req--NOC from IT Dept.. CA
Certificate is not anAlternative to
Departments Order
C 10 dt 9th October 2002 CA Certificate is alternative to IT department
order & Certificate
C 4 dt 29th June 2009 15CA/15CB format from 1st July 2009
N 58 dt 5th August 2013 Changes in 15CA/CB format
N 67 dt 2nd September 2013 Changes in Form 15CA/15CB applicable from
1st October 2013
Circulars & Notifications – 15CA/15CB
CA.ShwetaAjmera80

81. CA.ShwetaAjmera81
“The person responsible for paying to a non-resident, not being a
company, or to a foreign company, any sum, whether or not
chargeable under the provisions of this Act, shall furnish the
information relating to payment of such sum,in such form and manner,
as may be prescribed.”
Rule 37BB and Forms 15CA, 15CB and 15CC are prescribed
Section 195(1) does not cover interest under section 194LB,
194LC or 194LD and salaries but covered in section 195(6)
Section 195(1) applies on credit or payment, whichever is
earlier whereas 195(6) applies only on payment
Reporting of Foreign Remittances-195(6)

82. CA.ShwetaAjmera82
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.
Rule 37BB

83. CA.ShwetaAjmera83
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.
Such remittances are classified in the following two categories as
follows:
i. Non-reportable Transaction -’In following two cases there is no
requirement to furnish Form 15CA or Form 15CB.
(i) Remittances which are permissible as per FEMA and
(ii) Certain specified remittances as listed herein below.
ii. Reportable transaction
Steps while making a Remittance

84. CA.ShwetaAjmera84

85. CA.ShwetaAjmera85

86. CA.ShwetaAjmera
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.
Reportable Transactions:
86

87. CA.ShwetaAjmera87

88. Form 15CA
CA.ShwetaAjmera
• Is required to be filed online via the e-filing facility
• Digital signature required – except in case of individuals
• Details of following to be provided (irrespective of whether Part A/B/C or D is filled):
• Name and address of remitter
• PAN/TAN of remitter
• Residential status of remitter
• Details of recipient including name, address, PAN, etc
• Country to which remittance made
• Details of bank
• Purpose code as per RBI
• Details of accountant (in Part C)
• Details of Form 15CB (in case of Part C)
• Details of order under section 197 or 195(2) or 195(3) (in case of Part B)
88

89. Form 15CB
CA.ShwetaAjmera
• Is required to be filed online via the e-filing facility by CA
• Digital signature required
• UDIN required?
• online facility does not require
• FAQ 10 on UDIN by ICAI
• Details of following to be provided:
• Details of remitter PAN or TAN is compulsory of remitter
• Details of recipient
• Details of remittance including proposed date
• Whether grossed up
• Taxability under Act
• Taxability under DTAA
89

90. CA.ShwetaAjmera90
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
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
Questions?

91. Procedure for remittance
CA.ShwetaAjmera
Step 1: Check if payment is covered under section 195.
Step 2:Verify the factual and basic documents.
Step 3: Make classification of transaction on the basis of
nature of income.
Step 4: Check taxability as per Domestic Law.
Step 5: Check taxability as per DTAA along with availability
of TRC/Form 10F.
Step 6: Check the rates ofTDS applicable & Exchange rate.
Step 7: Form 15CA/15CB /195(2)/195(3)/197
Step 8: Remit the amount.
91

92. CA.SHWETA AJMERA
S AJMERA & CO
Chartered Accountants
Email: cashwetaajmera@gmail.com
92