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
cashwetaajmera@gmail.com

"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?
17/02/2017 5CA.Shweta Ajmera

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
11
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)”
16

• 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
CA.Shweta Ajmera17/02/2017 18

 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.
41

– 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?
44

• 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
45

• 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)
46

•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
47

• 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
48

• 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

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

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
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
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
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: cashwetaajmera@gmail.com

Icai 17.02.2017 Taxation of foreign remmitances

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