Rate if TDS in Case of NRI not having PAN

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Juzer Sadikot (Querist)
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10 November 2009 Dear Experts,

What shall be rate of TDS for NRI who does not have/does not furnish PAN?

Request you to give your expert advice after considering section 195, 206A and section 90 of Income Tax Act 1961.

Thanks in Advance.
Juzer

Sunil

Sunil (Expert)
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10 November 2009 Dear Juzer,

Rates for NRI is maximum marginal rate of 30.9%.
Rates for foreign companies will be not more than an excess specified in the DTAA over the Rates for Indian Companies. These will go well above 40%.

If you deduct as per section 9 you will be deducting these rates other than for Royalties and Technical Fees where agreement is approved by Government in which case the rate is 20% for agreements upto 2005 and the words approved by Central Government is deemed ommitted.

For agreements after 2005, (approved by CG? the section is silent on this) the rate for royalty is 10%. This will be affected by provisions of Section 206AA. PAN will be required.

In case DTAAs provides for a lower rate than 20%, all those will be affected. DTAAs usually specify the lower rate but they also at the same time use the words as per the laws of the contracting state. If the laws of the contracting state (206AA) mandates compulsory 20% in case of no PAN for any rates lower than 20%, you will have to deduct 20%. If you are deducting at higher rates, then question does not arise but Non Resident doing business in India will not be able to seek refund without PAN in case of excess deduction or in case TDS has not been done in provision with DTAA. 206 AA is applicable for all TDS sections.

To sum up:-
DTAA allows TDS for say professional payments irrespective of PE or no PE as per laws of the contracting state but a rate not over a certain percentage. If this is 20%, it makes no difference. If this is less, you still have to satisfy the Section 206AA for the applicability of a lower Rate.

I cannot find anything that specifically exempts a NR from having a PAN to avail lower rates.

If you satisfy the condition of income not being taxable in India per Section 9 as well as DTAA, then PAN may not be required as there is no TDS arising.

The problem for the NR will be in his own jurisdiction. If say DTAA specifies 15% and 20% has been deducted, the other contracting state of his residence may allow only 15% while calculating his relief from Tax suffered in India. Now this depends from country to country but in similar situation I am sure the Indian AO would contend like that on analyzing their mindset and inconsistencies.

If you read Section 90 for over riding effect of DTAA then PAN should not be insisted upon as you are choosing between 2 rates, Income Tax India and DTAA and you have to choose finally what is more beneficial. The Section 206AA it seems is giving option between 20% without PAN and Lower Rate if applicable under Income Tax Act (not DTAA). Therefore if Income Tax Act itself prescribes a lower rate than 20%, 206AA would be invoked. I hope this is the intention of the Department. This is just my view and if the Indian Payer wants to relax, he should ask his payee to pay Rs.850/- for PAN plus consular fees for making true copy of ID and address proof and apply for a PAN.

If you read 206AA it seems to over ride Section 195 and other provisions of income tax act as far as rates in force of TDS are concerned. However Section 90 seems to be overriding effect of DTAA on al sections of Income Tax. That should logically include Section 206AA.

CA BIREN SHAH

CA BIREN SHAH (Expert)
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13 September 2010 TDS will be deducted at 20% in case if payment is made to NRI if NRI has no PAN.

It is advisable on part of NRI to have PAN before he enter any such transcation.

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