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Foreign Remittance Certification in Form 15CA &...
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CA. PANKAJ G. SHAH| B.B.A.| L.L.B.(Hons.)| C.S.| F.C.A.| D.I.S.A.(ICA)|
Foreign Remittance Certification in Form 15CA & 15CB
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FEMA - Foreign Remittance Current Account remittances like Trading
remittances, Rent, Dividend, Interest, etc are freelyremittable unless prohibited
Capital Account transactions like Investment inShares, Property, Sale proceeds of Assets aregenerally restricted unless specifically allowed
NRI/PIO are allowed to remit upto USD One Millionp.a. out of funds in NRO Account
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Remittance Procedure as per RBI
RBI has in A.P. (DIR Series) Circular No. 56, datedNovember 26, 2002 has instructed the AuthorisedDealers (Banks) to make Remittance abroad afterobtaining following:
Declaration from the Remitter in Form specifying nature and purpose of remittance A1 – Imports A2 – Other than Imports
Income tax Clearance
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Income tax Clearance
Under Income tax following facilities areavailable for Income tax Clearance
Sec. 195(2) - Application by payer to A.O. for lower deduction
Sec. 195(3 & 4) - Application by payee to A.O. for lower deduction of Tax
Sec. 195(5) - Powers to CBDT to make Rules (Rule 37BB)Eg. Travel for Pilgrimage, Student Education, Equity Investment
Sec. 195(6) – C.A. Certificate in Form 15CB
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Section 195 (1)“Any Person responsible for paying to a non-resident, not being acompany, or to a foreign company, any interest or any other sumchargeable under the provisions of this Act (not being incomechargeable under the head “Salaries”) shall, at the time of credit ofsuch income to the account of the payee or at the time of paymentthereof in cash or by the issue of a cheque or draft or by any othermode, whichever is earlier, deduct income tax thereon at the ratesin force…………….”
“Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O”
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GE Technology 327 ITR 456(SC)
Payer not liable to deduct tax if amount not chargeable to tax
S.195(2) applies where payer is certain that tax is deductible on some part of remittance in composite payment
If payer is fairly certain, then he can make his own determination of TDS without AO by CA Certificate
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Objective of S. 195
Circular No. 152 dt. 27-11-74
Tax is collected at the earliest point of time
No difficulty in collection of tax at the time of assessment
To avoid loss of revenue as the non resident may not have assets in India for subsequent recovery
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Scope of S. 195 Person responsible to deduct tax
- Person as defined in section 2(31)- Includes non-residents and foreign companies
• Satellite Television Asia Region Ltd (99 ITD 92)(Mum)• Vodafone B.V. (SC)• E-trade Mauritius Ltd (Mum HC)
On Payments made to non residents- Includes all non residents having presence in India or not- It does not include RNOR
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Scope of S. 195 What are the payments covered?
- Any sum chargeable under the Act- Except Salary and dividends referred to in section 115-O
When to deduct tax?- At the time of payment or credit whichever is earlier
What rate to apply?- Lower of the two rates:
• Relevant rates in force; or• Rates under the Tax Treaty – sec 2(37A)(iii) – Circular No. 728 dt. 30-
10-1995
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……any sum chargeable to tax Section 5(2)
Taxable in hands of NR – Clearance after tax ispaid Taxable If income is Received in India Taxable if income is accrued in India
Not taxable – Clearance on determination thatno tax payable
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To sum up
Reporting Mandatory in S.195(6)• Irrespective of taxability
Penalty u/s 271-I• Rs. 1 Lakh
Rule 37BB EXCEPTIONS
Online Form 15CA and 15CB
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Section 4 and 195 Section 4(2) – “chargeable”
Section 195 not a charging but a machinery provision to give effect to Section 4(2). Eli Lily’s case (312 ITR 225)(SC)
Withholding tax is an offshoot of chargeability - not independent of it.
Whether payer is under obligation to withhold tax , even if the receipt is not taxable in the hands of the payee? G. E. India Technologies v. CIT (327 ITR 456)(SC) Cooper Engineering v CIT (68 ITR 457) (Bom) Transmission Corporation’s case (239 ITR 587) (SC). Vijay Ship Breaking Corporation v. CIT (314 ITR 309)Maharashtra State Electricity Board v. DCIT (90 ITD 793)
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Section 5 and Section 9
Section 5(2)(b) defines ‘Total Income’ of ‘non-resident’ toinclude income which ‘accrues’ or ‘arises’ or is ‘deemed toaccrue or arise’ in India.
Section 9 explains the meaning of the words “deemed to accrueor arise in India’ used in section 5(2)(b)
Right to tax – some reasonable nexus with India Residence; or Source Interest, Royalty and FTS
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Impact of DTAA
Section 90(2) provides that where a DTAA existsbeneficial of Income tax Act or DTAA
shall apply
However for availing benefit of DTAA it is compulsary toobtain TRC of the Payee Non Resident
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Tax Residency Certificate / Form 10FTRC mandatory for claiming Treaty Benefits S.90(4)
Rule 21AB• Prescribed format – Difficult to obtain• Amended to have prescribed details in TRC
Form 10F• Self Declaration by NR• Information to be provided
• Status of taxpayer (Individual/Company/firm)• Nationality or Country • Taxpayers tax identification no.
• If no such no. then a unique number used to identified by Govt.• Period of residential status• Address
Form 10FA – TRC from Indian Government
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C. A. Certificate Reasoning for nil/lower deduction.
Determination of residence for deduction
PrecautionsRepresentation – No PECopies of Back-up papers.Certificate of Fiscal Residence must for Treaty Benefit
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Specified Exemptions Travel for Pilgrimage, medical
treatment, education, business
Indian Investment abroad
Equity shares
Debt securities
Branches / WOS
Subsidiaries/Associates
Real estate
Advance against imports
Payment towards imports
Non resident towards family
maintenance
Personal gifts and donations
Payment or refund of taxes
Rebate reduction in invoice
value of exports
Payment in International
bidding
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Documentation
Agreement, Invoice describing Nature of Payment
No PE Declaration by NR
Tax Residency Certificate + 10F if necessary
Opinion / Advice on taxability and TDS applicability
Exchange Rate Letter
CA Certificate in Form 15CB
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Jurisdiction
Principal CCIT (Intl.tax), New Delhi
CCIT (Intl.tax)(West Zone), Mumbai
Director (I & TP), Ahmedabad
Additional/ Jt. Director (I & TP), Ahmedabad
Assistant/Dy. Director (I & TP), Ahmedabad
Income tax Officer (International tax & TP), Bhopal
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DTAA Rate + Surcharge + Cess ?
Absolute Rates as per DTAA
Surcharge and Edu.Cess not to be included• DIC Asia Pacific Pte. (52 SOT 447)(Kol)• Sunil Motiani (59 SOT 37) (Mum)
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Grossing up of Tax (S.195A)
Where the tax chargeable on any income
Is to be borne by the person by whom the income is payable,
then, for the purposes of deduction of tax
such income shall be increased to such amount as would, after TDS thereon at the rates in force
be equal to the net amount payable under such agreement or arrangement.
• Amount payable 100 and TDS 10% - Gross amt 111.11 (100*100/90)
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Gross Receipts or Income
CBDT vide Instruction No 2/2014 instructed that in cases where the assessee does not withhold taxes under section 195 of the Act, the AO is required to determine the income component involved in the sum on which the withholding tax liability is to be computed and the payer would be considered as being in default for non-withholding of taxes only in relation to such income component.
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Determination of income chargeable to tax
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Accrue or Arise – Business Income
Sale of Goods or Service in India.
Through a Fixed place of Business / PE in India
Profits attributable to Indian operations taxable in India
Eg. HSBC Bank (Branch of HSBC Bank Singapore)
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Accrue or Arise – Capital Gains
Subject Property located in India
Transferred and Gains accrue to NR
Taxable in India as Income generates in India
Liability to deduct tax for Sale of property arises when Sale deed clearly showed that seller is NR.
• Mrs. Meena S. Patil v ACIT 30 ITR 317 (Bang Tri)
However, Treaty with Tax Havens like Mauritius, Singapore provide that gains are taxable in Country of Residence.
• Azadi Bachao Andolan versus Union of India (SC)
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Deemed to accrue or arise in India –meaningSection Sources Of
IncomeDescription
9(1)(i) Business Income
Income from a business connection in India or through or fromany property or capital asset or source of income or transferof capital asset situated in India.
9(1)(ii) Salaries Salaries for services rendered in India.
9(1)(iii) Salaries Salaries by Govt. for services outside India.
9(1)(iv) Dividend Dividend paid by an Indian Company outside India. (nowExempt)
9(1)(v) Interest Interest by Govt. or by a resident (unless for a business or sourceoutside India)
9(1)(vi) Royalty ‘Royalty’ by Govt. or a resident (unless for a business or a sourceoutside India).
9(1)(vii) FTS ‘Fees for Technical Services (FTS)’ by Govt. or a resident(unless for a business or a source outside India).
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BUSINESS CONNECTION Taxability of a Business Income of Non-Resident Sec. 9(1)(i)
Taxability if “Business Connection“ exists or if asset or source in India. (Vodafone) R.D. Agarwal (56 ITR 20(SC)); Cir. 23 of 1969 & Cir. 786)
Taxable only to the extent “reasonably attributable” to operations in India.
Morgan Stanley-292 ITR 416 (SC);
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Business Income
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Is TDS required to be deducted on Import Payments?
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Import Payments
Remittance for Import Purchases to overseas supplier
Proceeds are Business Income of the Supplier NR
If the Supplier does not have a Permanent Establishment in India then No tax
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Safeguards – Import Payments
Avoid E-mail correspondance with Indian Agents
Indian agent should not be Dependent agent• Mainly and wholly
Indian agent should not• Secure orders• Conclude contracts• Negotiate rates
Tax Rate 40% on income
Income considered at 10% of Import value
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Liasion Office
LO
Marketing Activities
No
No PE
Yes
PE
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Overseas Commission to NR Agent
Toshoku Limited (1980) (125 ITR 525) (SC)
No PE/ Business connection in India – Not taxable • Farida Leather Company [2016] 287 CTR 565 (Madras)• CIT v. Faizan Shoes (P.) Ltd. [2014] 367 ITR 155 (Mad)• CIT v. EON Technology (P.) Ltd. [2011] 203 Taxman
266(Del)• AMD Metplast (P.) Ltd. v. Dy. CIT [2012] 341 ITR
563(Del)G.J. Shah & Company.37
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CIT Vs. TELCO (245 ITR 823 (Bombay)) CIT Vs. Industrial Projects (202 ITR 1014-Delhi) Clifford Chance 82 ITD 106-Mumbai) Mahindra & Mahindra Ltd. (10 SOT 896 (Mum)Against: Cochin Refineries (222 ITR 354 (Ker) Hindalco (278 ITR 125 (AT)
Reimbursement of Expenses:
TAXABILITY OF REIMBURSEMENT OF EXPENSES
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InterestRoyalty
Fees for technical Services
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Explanation to S.9(1)(v), (vi) &(vii)Interest, Royalty, FTS Taxable whether or not, —(i) the non-resident has a residence or place of
business or business connection in India; or(ii) the non-resident has rendered services in
India.”
Nullified Jindal Thermal Power Company Ltd. vs. DCIT (TDS) (182 Taxmann 252) Bombay High Court in Clifford Chance vs. DCIT (176 Taxmann 458)
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Interest Loan taken from a Foreign Bank abroad for Indian Project Overseas Project
Interest is being paid to Lender Bank abroad
Taxable or Not?
Interest paid to Bank resident in Mauritius ?
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Royalty Payment for “right to use” an Asset
Whether or not used in India or located in India
Process – transmission by satellite, cable, optic fibre, etc. 194J Electricity, Telephone
G.J. Shah & Company.
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Fees for Technical Services
Includes payment in consideration for the services of• managerial, • technical or • consultancy nature
Excludes where used for earning from source outside India
any construction, assembly, mining or like project
Whether or not PE or received in India
Rate of Tax – 10%
G.J. Shah & Company.
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Fee for Technical Services and DTAAD
TAA
Managerial, technical or consultancy Various
Technical and Consultancy
Canada, Finland, UK, US, Australia,
Singapore
No FTS clause (refer royalty clause)
Australia, Bangladesh, UAE, Indonesia, Mauritius, etc.
Make availableUS, UK, Canada,
Australia, Singapore, Finland
MFN Netherland, France, Sweden, etc.
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Make Available
DTAA – “make available”
Rendering of services by US Co such that Indian Co can use inventions, ideas and improvements obtained from US Co
•Providing technical designs to enable Indian Co to perform mining job by themselves
•Providing technical services and start-up services to enable promoters to set up power plant and run it on a going forward basis
•Sending technicians to show personnel in Indian Co to undertake certain tasks
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Most Favoured Nation
MFN terms granted to other countries extended to existing DTAA• Lower tax rate, • Narrowing scope of income liable to tax
Binds country (‘A’) to offer to the other country (‘B’) the same benefits which A may offer to a third country
Under protocol / exchange of notes, MFN DTAA
• Netherlands, Belgium, France, Sweden, Norway, Switzerland, • Spain, Kazakhstan, Philippines and Hungary
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FTS not defined in DTAA
No FTS definition in DTAA
Business income or Other income• No PE – Not taxable
Jurisprudence• Tekniskil (Seniderian) Berhard (222 ITR 551) (AAR)• GUJ Jaeger GMBH (37 ITD 64) (Mumbai ITAT),• Christiani & Nielsen Copenhagen (39 ITD 355) (Mum)• Golf in Dubai, LLC, vs. DIT [2008] (306 ITR 374) (AAR).• Bangkok Glass Industry 34 Taxmann.com 77 (Mad)
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Golden Rules (as per ACT)
G.J. Shah & Company.50
Income Received in India – Taxable Income Accrued in India - Taxable
Nature of Remittance TAXABILITYBUSINESS INCOME PE MUSTINTEREST PE IRRELEVENTROYALTY PE IRRELEVENTFEES FOR TECHNICAL SERVICES
PE IRRELEVENT
CAPITAL GAINS ASSET OR BUSINESS IN INDIA
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Case Studies
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FTS Case Study
A Ltd. makes payment of technical services to B Ltd. France.
Tax rates are as follows:
• France 20%• US 10%• Germany 10%
What is rate of TDS?
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Case StudiesFees for Due Diligence CA Firm in South Africa for
• DD of Indian company• DD of South African Co.
Fee to Foreign Recruitment Agency ABC, South Africa for finding employee in Canada?
Employee interview fees paid to Head Hunters, USA?
Fees to CA in UAE for Auditing Accounts of Branch?
Business support services given to Assessee by US Co.?
G.J. Shah & Company.
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Other Remittances
Fees for Repair of Imported Machinery to Singapore Co.
It is the Web-server and not the Website which constitutes a “Permanent Establishment” – examined only on the basis of website simplicitor and no other additional basis.
• Right Florists (P.) Ltd. (32 taxmann.com 99)
User Fees paid by Indian users of website cannot be characterised as “Fees For Technical Services”
• eBay International AG (140 ITD 20)
Whether payments for keyword advertising are for “use of equipment”—Held No
• Pinstorm (2012) and Yahoo India (2011)
Referral fee paid to NR is not taxable in India.
• Cushman and Wakefield Pte Ltd. 305 ITR 208 (AAR)
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Discounting charges from LC
Particulars AmountInvoice Amount Export 100LC Charges -2Net Payment Received 98
Accounting Issues
Withholding tax issues• Diversion by Overriding title• No payment by Assessee
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Sponsorship Sponsorship to popular sports events is sales
promotion expenditure. It cannot be treated as royalty. Hence, no TDS. DIT v Sahara India Financial Corporation Ltd 321 ITR 459
(Del)
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“Rates in Force” & S. 206AA Section 2(37A)
Effect of DTAA
CBDT Circular No. 728 dated 30.10.95
Whether surcharge leviable if DTAA rates adopted.
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Rates in Force
Nature Foreign Co. (Sur 2/5%)
Non Corp. (Sur 15%)
Business Income/Other Income
41.20 %42.024 43.26 %
30.9 %35.535 %
Royalty/FTS 10.3 %10.506 %10.815 %
10.3 %10.845%
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Effect of Section 206AA
Taxable
No Yes PAN/FTR
Yes No
Treaty and TRC
Yes -DTAA
No –20%
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Consequences of non-deduction
Deductor deemed “assessee in default” – S. 201(1)
Interest @ 15% p.a. Section 201(1A).
Penalty u/s. 221
Penalty u/s. 271C.
Prosecution u/s. 276B.
Section 40(a)(i)
Section 163
G.J. Shah & Company.