India: Administrative notifications prescribe additional reporting requirements in certain cross-border situations
Rajendra Nayak and Aastha Jain, EY
The Central Board of Direct Taxes, the apex administrative authority of direct taxes in India, recently issued notifications prescribing additional reporting requirements under two circumstances, firstly, by a non-resident (NR) taxpayer to claim benefit under a tax treaty and secondly, by a person (remitter) responsible for making payments to a NR (recipient) which are chargeable to tax in India.
Under the Indian Tax Law (ITL), a NR taxpayer is required to furnish a tax residency certificate (TRC) along with other prescribed information in order to claim any relief/ benefits under a tax treaty. In this regard, the first notification prescribes additional information to be provided in the given format. It requires details in relation to the taxpayer status (individual/firm/company) , nationality (in case of individual) or country or specified territory of registration (in case of others), tax identification number in country of residence, permanent account number in India (if allotted), address, period of residence where such details are not contained in the TRC. Further, the taxpayer is required to keep and maintain such documents as are necessary to substantiate the information provided. This notification is applicable from tax-year 2012-13.
As per the provisions of the ITL, a remitter making payment of any sum chargeable to tax to a NR is required to withhold tax at source at the prescribed rates. To track remittance of such payments and to expedite tax recovery, the remitter is required to furnish certain information electronically in prescribed form and manner. The second notification amends existing rules to provide for a new format and manner of furnishing information in respect of all such taxable payments made to an NR. The scope of covered payments is expanded to payments including salary, interest on external commercial borrowings, income of sportsmen/sports associations, income from transfer of foreign currency units held by offshore funds, income from foreign currency bonds/shares of Indian companies, income of foreign institutional investors from securities and income from lottery/crossword puzzle/horse race. The revised rules provide for furnishing of detailed information in two formats: (i) part A for small value payments not exceeding INR50,000 ($800) and aggregate not exceeding INR 250,000 during the tax year (ii) part B for any other payments not covered under part A. The requisite information covers details about the remitter, recipient, payment, bank (making remittance). The information sought under part B is more expansive (including details about the taxability of payment under the ITL/tax treaty, TRC) and it needs to be based on a certificate obtained from a chartered accountant or tax withholding orders obtained from Indian tax authorities. Further, the revised rules exempt a list of payments, which are mainly capital/ personal in nature, from the reporting requirements. This notification comes in effect from October 1 2013.
These recent notifications highlight a trend with the Indian tax administrators to enhance, broaden the base and strengthen the mechanism of collecting information in cross-border situations and to enable more stringent tax/withholding enforcement on these transactions.
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