NON RESIDENT TDS LIABILITY

When we enter agreement with non-residents, in most of the cases we are doing grossing up which in turn is increasing our cost, as no PAN is being provided by Non-Residents, in absence of which we are paying TDS @ 20%. There might be some saving on this account as the Finance Act, 2016 inserted section 206AA(7) of the Act to provide that higher rate of withholding shall not be applicable to payment made to non-resident tax payers subject to such conditions as may be prescribed.

> The Central Board of Direct Taxes has now by notification dated 24 June 2016, inserted Rule 37BC to the Income-tax Rules, 1962 (Notification copy attached). Rule37BC prescribes details and documents which the deductee (non-resident taxpayer) is required to furnish to the deductor (Indian resident). The Rule states that in the absence of PAN, Section 206AA of the Act shall not apply in respect of payments in the nature of interest, royalty, fees for technical services and payments on transfer of any capital asset, if the deductee furnishes details and documents prescribed therein.

> The prescribed details and documents are as follows:

> 1. name, e-mail id, contact number;

> 2. address in the country or specified territory outside India of which the deductee (i.e. non-resident) is a resident;
> 3. A certificate of his being resident in any country or specified territory outside India from the Government of that country or specified territory if the law of that country or specified territory provides for issuance of such certificate;

> 4Tax Identification Number of the deductee in the country or specified territory of his residence and in case no such number is available, then a unique number on the basis of which the deductee is identified by the Government of that country or the specified territory of which he claims to be a resident.
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> Rule 37BC provides for non-applicability of section 206AA of the Act in respect of payments in the nature of interest, royalty, fees for technical services and payments on transfer of any capital asset. Rule 37BC thus covers major payments which have a beneficial rate to the non-resident taxpayer under the tax treaty and the rate of withholding tax under section 115A of the Act.
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> The higher withholding tax rate of 20% will not be applicable in case the above documents are made available at the time of tax deduction by the non-resident payee. Hence, kindly consider this, while making payments or entering any contract with NR’s